**Dollar Under Pressure as Trump Returns: What Forex Traders Should Watch This Week**

SINGAPORE (Reuters) – The U.S. dollar is encountering headwinds at the start of a crucial week as Donald Trump resumes his position in the White House. Investors are keenly awaiting his inauguration speech later today, which could provide insights into his forthcoming policies that might impact the currency markets.

In currency trading, the Japanese yen has shown resilience, recently reaching a one-month high as speculations grow that the Bank of Japan (BOJ) may raise its policy interest rate during its upcoming meeting. Such a move would thrust short-term borrowing costs to levels not seen since the 2008 global financial crisis, a significant shift that traders are monitoring closely.

It’s worth noting that trading volume may be limited today due to the Martin Luther King Jr. Day holiday, which sees U.S. markets closed.

Cryptocurrency markets continue to rally, fueled by anticipation of executive orders from Trump aimed at easing regulatory barriers and encouraging broader acceptance of digital currencies. A notable highlight is Trump’s recent launch of a digital token, which briefly surpassed $70, positioning it at a market valuation of over $15 billion. Currently, it’s trading around $58 according to CoinMarketCap.

Bitcoin is slightly down at $102,550 as of Monday, although it has seen an impressive increase of 80% since the November elections, recently setting a record high.

As markets turn their attention to Trump’s inaugural policies, his comments at a rally on Sunday, where he proposed harsh immigration restrictions, further add to the anticipation. Analysts from Goldman Sachs are optimistic that U.S. policy changes could bolster the dollar but warn of imminent risks associated with market expectations for rapid tariff implementations.

Goldman strategists liken the unfolding news cycle to the initial phase of Trump’s first presidency, stating, “We think the storm is just rolling in. We expect it will pay to be patient,” indicating that investors should brace for a series of developments rather than immediate actions.

Currently, the dollar index, which gauges the U.S. currency against six other major currencies, is down 0.16% at 109.16, though it remains near its 26-month peak of 110.17 achieved last week. The index has appreciated 4% since the election, driven by the anticipation that Trump’s policies may spur growth but also ignite inflation concerns, necessitating elevated interest rates longer than previously expected.

In the eurozone, the euro has gained 0.26% to $1.029775, although it remains close to a two-year low due to tariff-related concerns. Meanwhile, the British pound has inched up 0.27% to $1.2201.

According to Thierry Wizman, global FX and interest rate strategist at Macquarie, traders are currently adopting a “wait-and-see” mindset regarding tariffs. Increased commentary on tariffs could result in a dollar appreciation, thereby nudging bond yields higher.

Recent data showing slightly lower core inflation, dovish remarks from Federal Reserve’s Christopher Waller, and indications of a gradual tariff rollout have altered traders’ expectations, with two interest rate cuts now being factored into the market.

Additionally, developments in the Middle East are on traders’ radar following a ceasefire that saw Hamas release three Israeli hostages while Israel freed 90 Palestinian prisoners—a situation that may also influence market sentiment.

As for the Japanese yen, it traded at 155.98 per dollar, close to its recent one-month high. Reports suggest that the BOJ may be positioned to raise rates during its meeting on January 23-24 unless unforeseen market forces intervene. Both BOJ Governor Kazuo Ueda and his deputy have indicated that rate hikes will be a topic of discussion, underscoring the likelihood for monetary policy adjustments this year.

HSBC’s chief Asia economist, Fred Neumann, supports the notion of a rate hike, noting that Japan’s economic indicators suggest that monetary policy normalization is overdue. “We think it’s now good to do this (hike rates),” he stated.

In conclusion, forex traders should remain cautious and tuned to the evolving geopolitical and economic landscape this week, particularly as Trump’s policies begin to take shape and central banks consider adjustments to their monetary strategies.

Image from Freepik via Free Malaysia Today, licensed under CC BY 4.0.