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The U.S. dollar continued to strengthen on Wednesday, reaching a new six-and-a-half-month high against a basket of major currencies. This rally has been propelled by anticipation of economic policies from President-elect Donald Trump, including lower taxes, increased tariffs, and deregulation, all of which are expected to fuel inflation and possibly lead the Federal Reserve to reconsider its approach to interest rate easing.
The Dollar Index climbed 0.1% to 106.12, marking its fourth consecutive day of gains. Against the yen, the dollar breached the 155 mark, pushing the Japanese currency to its weakest level since late July. The Bank of Japan is facing pressure to make decisions regarding rate hikes as Japan’s wholesale inflation in October recorded its fastest annual increase in over a year.
Eyes are also on the upcoming U.S. Consumer Price Index (CPI) report, with expectations of a 0.3% rise in core inflation for October, matching September’s increase. The inflation data will be crucial as markets assess the Federal Reserve’s likelihood of another rate cut in December. Current market sentiment assigns about a 60% probability of a 25-basis-point cut, a reduction from 84% a month ago.
In Europe, the euro remained near a one-year low, pressured by both political uncertainty in Germany and concerns about potential tariffs from the Trump administration. Germany is gearing up for snap elections in February following the collapse of Chancellor Olaf Scholz’s coalition. The euro traded at $1.0611, slightly down by 0.1%, while the British pound also weakened, approaching a three-month low of $1.2737.
On the cryptocurrency front, Bitcoin eased off record highs, trading at $87,428 after briefly nearing $90,000. In an unusual move, Trump announced that Elon Musk would co-lead a new Department of Government Efficiency, with the department’s acronym, DOGE, referencing the popular cryptocurrency Dogecoin, which Musk has often endorsed. Dogecoin itself experienced some volatility following this news.
Overall, the financial markets are responding to a mix of inflationary concerns, political developments, and anticipation of U.S. economic policy shifts under the upcoming Trump administration.
