LONDON: The dollar edged higher on Tuesday, tracking a rise in U.S. Treasury yields as investors questioned whether market pricing for interest rate cuts this year is justified.
In cryptocurrencies, bitcoin held near its strongest level since April 2022 on growing anticipation the Securities and Exchange Commission will imminently approve spot bitcoin exchange-traded funds (ETF).
Money market traders price in around 135 basis points worth of easing for the Federal Reserve this year, with approximately a 60% chance that they start cutting in March.
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“It’s not really been a straight line for the dollar this year, which is largely taking its lead from the developments in U.S. fixed income markets,” said Kamal Sharma, senior G10 FX strategist at Bank of America.
The U.S. benchmark 10-year yield was up 4.5 basis points on Tuesday to 4.0455%. It has continued to rise after hitting its lowest level since July at 3.783% at the end of last year.
“The market is still trying to find its feet in terms of the trajectory and timing of the first U.S. rate cut,” added BofA’s Sharma, who expects the Fed to start cutting rates at its March meeting.
“Our base case scenario is for a soft landing, lower dollar, and bull steepening, and that broadly should be supportive of risk assets more generally.”
The U.S. dollar index, which measures the greenback against a basket of six currencies, was last up more than 0.1% at 102.42, having risen 1% last week.
The euro last stood at $1.0934, away from its recent three-week low of $1.0877, while sterling slipped 0.2% to $1.2721.
In Asia, data on Tuesday showed core inflation in Japan’s capital slowed for the second straight month in December, taking some pressure off the Bank of Japan to rush into exiting ultra-loose monetary policy.
The yen was little changed following the release, and was last at 144.01 per dollar, up 0.1%.
The Aussie last bought $0.6698, away from its three-week low of $0.6641 hit last Friday. The kiwi slipped 0.2% to $0.6243 but remained some distance away from Friday’s three-week trough of $0.6182.
Elsewhere, bitcoin stood at $46,708, having scaled a 21-month top of $47,281 in the previous session.
A raft of investment managers on Monday disclosed the fees they plan to charge for their proposed spot bitcoin ETFs, in another step toward approval this week by the U.S. securities regulator.
“Investor expectations are justifiably high,” said eToro global markets strategist Ben Laidler, citing increased engagement from the SEC.
“This suggests downside to a disappointing result, and some may be tempted to even ‘sell the news’ on a positive outcome,” Laidler added.
Ether, the second-largest cryptocurrency, fell 1.4% to $2,299.
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