Dollar Steady, Bitcoin Holds Gains Ahead of Expected Spot ETF Approval

A decline in US consumer inflation expectations kept the dollar rally in check on Tuesday as traders reaffirmed their bets for a slew of Federal Reserve rate cuts this year.

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).

The New York Fed's latest Survey of Consumer Expectations showed on Monday that US consumers' projection of inflation over the short run fell to the lowest level in nearly three years in December.

A reading on US inflation is due later in the week, which will likely provide further clarity on how much room the Fed has to ease rates this year.

"The big story... the catalyst, was the data regarding inflation expectations going forward," said Kyle Rodda, a senior financial market analyst at Capital.com.

"While it's still a tight labour market, we're still seeing those sort of disinflationary impulses in the United States, which again raises the probability that the Fed will have capacity to cut rates fairly soon."

Futures point to around 135 basis points worth of easing priced in for the Fed this year, with approximately a 60 percent chance that they start cutting in March.

"The market is still trying to find its feet in terms of the trajectory and timing of the first US rate cut," said Kamal Sharma, senior G10 FX strategist at Bank of America, who expects the Fed to start cutting rates at the March meeting.

"Our base case scenario is for a soft landing, lower dollar, bull steepening and that broadly should be supportive of risk assets more generally," Sharma added.

The US dollar index , which measures the currency against a basket of six currencies, was little changed at 102.32, having risen 1 percent last week.

The euro last stood at $1.0947, away from its recent three-week low of $1.0877, while sterling slipped 0.1 percent to $1.2737.

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 143.90 per dollar.

The Aussie last bought $0.6703, away from its three-week low of $0.6641 hit last Friday. The kiwi slipped 0.2 percent to $0.6243 but remained some distance away from Friday's three-week trough of $0.6182.

Elsewhere, bitcoin stood at $46,713 (roughly Rs. 38.8 lakh), after having scaled a 21-month top of $47,281 (roughly Rs. 39.3 lakh) in the previous session.

A raft of investment managers had on Monday disclosed the fees they plan to charge for their proposed spot bitcoin ETFs, in another step toward approval this week by the US 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 percent to $2,299 (roughly Rs. 1.9 lakh).

© Thomson Reuters 2024