Dollar wavers as Powell signals economic slowdown; Bitcoin hits $40,000 milestone

The week kicked off with a tentative start for the U.S. dollar, as investors assessed cautious remarks from Federal Reserve Chair Jerome Powell. The focus was on an imminent employment report that could sway the outlook for U.S. interest rates.

Bitcoin took center stage during the Asian morning, surging to the $40,000 mark, a level not seen in over a year.

Powell affirmed on Friday that U.S. monetary policy was indeed slowing the economy as anticipated, with the overnight interest rate comfortably in restrictive territory. While he maintained the Fed’s readiness to tighten policy further if necessary, traders were increasingly convinced that the rate-hike cycle had concluded.

Market indicators suggested a 60% probability of a rate cut by the March meeting, a notable increase from the 21% estimate just over a week prior, according to the CME’s FedWatch tool.

The U.S. dollar index, which gauges the currency against six major counterparts, held steady around Friday’s close at 103.28.

U.S. data continued to be the primary influence on G10 currencies, with non-farm payrolls looming as the most critical risk event for the week, according to Kyle Rodda, senior financial market analyst at Capital.com. The closely watched November jobs report was scheduled for release on Friday.

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The trend of diminishing belief in U.S. economic exceptionalism, coupled with the unwinding of extended long positions in the U.S. dollar, suggested that dollar pairs could see further momentum based on U.S. economic data, Rodda noted.

Against the yen, the dollar traded at $146.58, rebounding from an earlier low of 146.24, its lowest since September 11. The Australian dollar reached a four-month high against the greenback at $0.669, while the kiwi rose to $0.6222, its strongest level since late July.

Sterling retreated from a three-month high against the greenback, last trading around $1.2682 compared to the peak of $1.2733 reached the previous week.

Currency markets awaited speeches from European Central Bank officials, anticipating a flurry of regional economic data, including revised third-quarter GDP data for the euro bloc on Thursday.

Eurozone inflation dropped to 2.4% in November, reinforcing expectations that the ECB might expedite interest rate cuts. The euro remained mostly flat on Monday at $1.0874 after briefly dipping to $1.0829 following last week’s inflation data.

President Christine Lagarde was scheduled to deliver a speech later in the day, with analysts anticipating a cautious approach despite positive Eurozone CPI reports. Carol Kong, a currency strategist at the Commonwealth Bank of Australia, suggested that Lagarde might not entertain the idea of ECB rate cuts just yet, emphasizing the tightness of the eurozone labor market.

In the Cryptocurrency space, bitcoin reached the $40,000 mark for the first time in nearly a year and a half, driven by optimism that U.S. regulators would soon approve bitcoin exchange-traded funds on the stock market.