Investors Lift US Dollar, Focus on Federal Reserve Outlook

By Chuck Mikolajczak

NEW YORK (Reuters) -The U.S. dollar rose on Wednesday, renewing its post-election rally after a three-session decline as investors looked for more insight on the Federal Reserve’s interest rate plans and U.S. President-elect Donald Trump’s proposed policies.

Safe-haven currencies such as the Japanese yen, Swiss franc and the greenback saw a brief boost on Tuesday before fading. Russia’s foreign minister Sergei Lavrov said that country would “do everything possible” to avoid nuclear war, hours after an announcement by Moscow to lower its threshold for a nuclear strike provided them with a bid.

Even with the recent pause, the dollar index has rallied about 3% since the U.S. election on growing expectations the Fed may slow its path of interest-rate cuts on concerns Trump’s policies could reignite inflation.

“There’s a lot of pessimism about Fed rate cuts that we think (is) misplaced,” said Jay Hatfield, CEO at Infrastructure Capital Advisors in New York.

“The rest of the world, except for Japan, has to cut because they have zero growth, basically, and without the U.S. they’d be in a recession. So then the big variable is the U.S. Everybody is super-bearish, in our opinion too bearish, about Fed cuts.”

The dollar index, which measures the greenback against a basket of currencies, rose 0.52% to 106.65, with the euro down 0.5% at $1.0542.

Expectations for the path of rate cuts have been scaled back, while volatile, in recent weeks. Markets are pricing in a 52% chance of a 25-basis-point cut at the Fed’s December meeting, down from 82.5% a week ago, according to CME’s FedWatch Tool.

A Reuters poll showed most economists expect the Fed to cut rates at its December meeting, with shallower cuts in 2025 than expected a month ago due to the risk of higher inflation from Trump’s policies. Recent comments from Fed officials, including Chair Jerome Powell, have pointed to the central bank being slow and measured in its rate-cut path.

On Wednesday, Fed governors Michelle Bowman and Lisa Cook laid out competing visions of where U.S. monetary policy may be heading, with one citing ongoing concerns about inflation and another expressing confidence that price pressures will continue to ease.

Against the Japanese yen, the dollar strengthened 0.43% to 155.31.

The dollar had strengthened as much as 9% against the yen since the beginning of October to as much as 156.74, rising above the 156 mark last week for the first time since July and sparking the possibility Japanese authorities may again take steps to shore up the currency.

Investors are waiting for Trump to name a Treasury secretary, one of the highest-profile cabinet posts overseeing the country’s financial and economic policy. Some of Trump’s other picks have generated questions about their qualifications and experience.

The recent yen weakness to a three-month low has lifted expectations the Bank of Japan was likely to make a hawkish shift as the currency approaches levels that prompted an intervention in July.

Comments this week from BoJ Governor Kazuo Ueda did not offer fresh signals on the central bank’s leanings.

Sterling weakened 0.27% to $1.248. The pound had initially moved higher as data showed British inflation jumped more than expected last month to rise back above the Bank of England’s 2% target, and underlying price growth also gathered speed.

The rise in inflation supported cautiousness by the BoE on interest-rate cuts. Traders see an 82.8% chance the central bank will hold rates steady at its policy meeting next month.

In cryptocurrencies, bitcoin gained 1.81% to $93,912.00 as it broke through the $94,000 mark for the first time to a high of $94,982.37. Bitcoin was buoyed by hopes Trump will create a friendlier regulatory environment and a report the president-elect’s social media company was in talks to buy crypto trading firm Bakkt.

(Reporting by Chuck Mikolajczak; Editing by Rod Nickel and Jonathan Oatis)