Dollar drifts as Fed clues await; Bitcoin reaches its highest level in two years

Written by Kevin Buckland

TOKYO (Reuters) – The U.S. dollar drifted within a narrow range on Monday, under pressure from lower Treasury yields, with traders waiting for more important economic data for new clues about the timing of interest rate cuts by the Federal Reserve (the U.S. central bank).

Bitcoin rose to its highest level in more than two years amid heavy inflows into cryptocurrency exchange-traded funds.

The Euro was strong after Friday's 0.33% advance, with the European Central Bank's policy decision looming on Thursday.

The yen fluctuated around the closely watched level of 150 yen per dollar, as investors tried to assess whether the Bank of Japan's exit from its negative interest rate policy could happen as soon as this month.

The dollar index – which measures the currency against six major currencies including the euro and the yen – was little changed at 103.85 by 0530 GMT, fluctuating narrowly in the lower half of its 103.43-104.97 range last month.

The index lost 0.26% on Friday after some weak manufacturing and construction spending data.

It also weighed on Treasury yields, removing additional support for the dollar, with the benchmark 10-year yield falling to a low of 4.178% for the first time in two weeks. The yield was about 4.2% on Monday.

“The bias appears to be swinging toward a test of range support,” in the run-up to major macro releases this week, as well as Fed Chair Jerome Powell’s testimony before Congress, Westpac strategists wrote in a note to clients.

“But markets will need a significant shift in data to indicate that range support will be anything other than another buying opportunity,” the note added, which would keep the dollar index within its current range.

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This week brings ISM Manufacturing and Services readings on Tuesday, with the main event on Friday in the form of monthly payroll numbers.

Meanwhile, the dollar rose 0.1% to 150.28 yen, as traders weighed dovish comments from Bank of Japan Governor Kazuo Ueda from late last week that it was too early to conclude that the central bank's inflation target was close to being met.

This contrasts with hawkish comments made by Bank of Japan board member Hajime Takata earlier in the day, which pushed the yen to its highest level in more than two weeks at 149.21 against the dollar.

Markets are weighing whether the Bank of Japan will end its negative interest rate policy at its meeting on March 18-19, or wait until April or later.

Policymakers have repeatedly stressed the need to see continued wage growth, and the results of crucial spring pay negotiations will be known on March 13 for Japan's largest companies.

“The March meeting is live,” said Shoki Omori, chief strategist in the Japan office of Mizuho Securities.

“I am not saying that (an interest rate hike) is possible, but the Bank of Japan is more flexible now” about the timing of exiting stimulus, he said.

“Shunto's results are likely to be on the better side, and if the US data is strong, it's really good timing for them to move forward.”

Elsewhere, the euro was little changed at $1.08435, sitting near the top of its recent range.

Most economists expect the ECB to cut interest rates first at its June meeting, but are hoping for additional clues about the timing from central bank President Christine Lagarde's press conference.

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The British pound rose 0.08 percent to $1.2663.

Bitcoin last traded about 1.2% higher than Sunday at $63,350, after earlier reaching $64,284.75, the highest level since November 2021, the same month it hit a record high of $68,999.99.

The largest cryptocurrency by market cap has gained 50% this year and most of the rise has come in the past few weeks as trading volume for US-listed bitcoin funds surged following its approval earlier this year.

“When I look at the chart of Bitcoin futures, I see an exhausted market that doesn't have enough will to get to 69,000 right now,” said Matt Simpson, chief market analyst at City Index.

“I'm not saying this is a sell market, but I would be cautious buying at these high levels.”

(Reporting by Kevin Buckland; Additional reporting by Ankur Banerjee; Editing by Jacqueline Wong and Michael Perry)

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