Dollar starts 2024 with gains on yen and euro, bitcoin above $45,000

The US dollar surged, drawing focus on upcoming US job data and European inflation figures. These key indicators are expected to provide insights into the prospective moves of central banks.

Concurrently, Bitcoin exhibited a notable rally, underscoring the dynamic nature of the financial landscape.

The dollar index, gauging the US currency against six major counterparts, closed at 101.55, reflecting a 0.17% increase. The currency had experienced a 2% decline in 2023, ending a two-year upward trend as investors weighed the possibility of rate cuts by the Federal Reserve in the upcoming year.

On the flip side of the dollar's ascent, the euro saw a marginal dip of 0.17%. Traders reacted to data revealing that Eurozone factory activity contracted for the 18th consecutive month in December. Simultaneously, the Japanese yen faced challenges, with the dollar gaining 0.43% at 141.4 yen.

This week holds significant economic data releases, including European inflation and US job openings and non-farm payroll figures. Market expectations regarding monetary policy moves by the Federal Reserve and the European Central Bank are anticipated to be shaped by these releases.

The market is currently pricing in an 86% likelihood of interest rate cuts by the Federal Reserve, set to commence in March, according to the CME FedWatch tool. This projection foresees over 150 basis points of easing throughout the year. 

The release of minutes from the December Fed meeting on Thursday is expected to offer additional insights into the central bankers' perspectives.

Nicholas Chia, Macro Strategist at Standard Chartered, expressed optimism, stating, "The positive sentiment from end-2023 may roll over into this week as all eyes turn to the U.S. jobs report on Friday."

This positive sentiment permeated various sectors, influencing commodities and stocks positively on Tuesday. Kenneth Broux, Senior Strategist FX and Rates at Societe Generale, highlighted the upbeat start to 2024 in the foreign exchange market, pointing to gains in the Australian dollar, the Norwegian crown, and the Mexican peso.

Meanwhile, in Japan, rescue teams faced challenges reaching isolated areas affected by a powerful New Year's Day earthquake, with reports of nearly 50 casualties and widespread infrastructure damage.

The sterling maintained its position at $1.2724, flat for the day. Despite a robust 5% gain in 2023, uncertainties surrounding a weakening economy and upcoming elections make a repeat performance unlikely.

The cryptocurrency market marked the beginning of the year on a high note, with Bitcoin reaching a 21-month peak of $45,532. This surge was attributed to growing expectations that the US Securities and Exchange Commission will soon approve exchange-traded spot Bitcoin funds.