The U.S. dollar edged lower on Monday as investors braced for Donald Trump’s return to the White House, with his inauguration speech later in the day expected to provide key insights into his immediate policy agenda.
The yen strengthened, hovering near a one-month high reached last week, amid expectations that the Bank of Japan (BOJ) might raise interest rates at its upcoming policy meeting. If realized, it would mark the first rate hike since last July and elevate borrowing costs to levels unseen since the 2008 global financial crisis.
Trading volumes remained subdued due to the Martin Luther King Jr. Day holiday in the United States.
Cryptocurrency markets were buoyant, reflecting optimism over potential executive orders from Trump aimed at easing regulatory hurdles and fostering widespread adoption of digital assets. During his campaign, Trump promised to champion the crypto industry, even launching a digital token last week that briefly surged above $70, achieving a market capitalization of over $15 billion before stabilizing around $58, according to CoinMarketCap.
Bitcoin, the world’s most prominent cryptocurrency, was slightly weaker at $102,550 on Monday but remains up 80% since the U.S. election, having hit an all-time high last month.
Focus on Trump's Policy Priorities
Markets are closely watching for Trump's first-day initiatives. At a rally on Sunday, he hinted at sweeping immigration restrictions, further fueling market speculation.
Goldman Sachs strategists anticipate U.S. policy changes that could bolster the dollar over time but caution against expecting immediate tariff announcements. “We foresee a gradual rollout of tariff-related policies, mirroring patterns from Trump’s previous presidency,” they noted.
Dollar Index and Forex Movements
The dollar index, which tracks the greenback against six major currencies, slipped 0.16% to 109.16, staying near a 26-month high of 110.17 touched last week. The euro gained 0.26% to $1.0298, while sterling rose 0.27% to $1.2201.
Thierry Wizman, global foreign exchange strategist at Macquarie, emphasized the uncertainty surrounding tariffs, describing market sentiment as cautious: “Any renewed mention of tariffs could drive the dollar higher alongside bond yields.”
BOJ Rate-Hike Bets Intensify
The yen was trading at 155.98 per dollar, close to the one-month high of 154.98 reached on Friday. Sources suggest that the BOJ could raise rates this week, barring significant market disruptions tied to Trump’s inauguration.
BOJ Governor Kazuo Ueda signaled the central bank’s readiness to tighten monetary policy during its Jan. 23–24 meeting. Analysts, including Fred Neumann of HSBC, argue that Japan’s economic data supports such a move, with Neumann commenting, “The BOJ should have raised rates in December. Now is a good time to act.”
Geopolitical Developments
Meanwhile, geopolitical tensions eased slightly after Hamas released three Israeli hostages and Israel freed 90 Palestinian prisoners, marking the first day of a ceasefire in the Middle East.