By Ankur Banerjee
SINGAPORE (Reuters) - The dollar was on the defensive at the start of a pivotal week on Monday as Donald Trump returns to the White House, with his inauguration speech later in the day the primary focus for investors hoping to decipher his immediate policies.
The yen strengthened, clinging to a one-month high touched last week, as traders wager that the Bank of Japan will hike its policy interest rate this week, lifting short-term borrowing costs to levels unseen since the 2008 global financial crisis.
Trading volume is expected to be thin due to the U.S. markets being closed for the Martin Luther King Jr. Day holiday.
Cryptocurrency investors remain in party mode, awaiting executive orders from Trump aimed at reducing regulatory roadblocks and promoting widespread adoption of digital assets.
Trump courted crypto campaign cash promising to be a "crypto president" and launched a digital token on Friday, which soared above $70 at one point for a market value north of $15 billion. It was last trading around $58, CoinMarketCap showed.
Bitcoin, the world's best-known cryptocurrency, was slightly weaker at $102,550 on Monday. It has surged 80% since the U.S. election in early November, touching a record high last month.
The spotlight is firmly on the policies Trump will enact on his first day in office. At a rally on Sunday, Trump said he would impose severe limits on immigration.
Goldman Sachs strategists expect U.S. policy changes to support dollar strength but cautioned about near-term risks due to the market's expectations for swift action on tariffs.
Instead, Goldman strategists anticipate a series of headline-grabbing news over time on tariffs, similar to Trump's first presidency. "We think the storm is just rolling in. We expect it will pay to be patient."
WAIT AND SEE
The dollar index, which measures the U.S. currency against six peers, was 0.16% lower at 109.16, but hovered close to a 26-month high of 110.17 touched last week.
The index has risen 4% since the election as traders anticipate Trump's policies will boost growth but also be inflationary, necessitating higher interest rates for a longer period.
The euro advanced 0.26% to $1.029775, but remained near a two-year low touched last week as tariff threats weighed. Sterling rose 0.27% to $1.2201.
Thierry Wizman, global foreign exchange and interest rates strategist at Macquarie, said when it comes to tariffs, traders are in a "wait-and-see" mode at best and, at worst, have been largely unwilling to give disinflation in the U.S. the benefit of the doubt.