By Kevin Buckland

TOKYO (Reuters)

The U.S. dollar traded close to a four-month peak against major peers on Tuesday, while Bitcoin extended its record rally as investors flocked to trades expected to benefit from the upcoming Donald Trump administration.

The euro languished near a nearly seven-month low reached overnight, while the yuan remained close to a more than three-month low, with Europe and China both being specific targets of potential Trump tariffs.

The U.S. dollar index, measuring the currency against six peers, including the euro, rose 0.07% to 105.49 as of 0037 GMT, after reaching 105.70 on Monday for the first time since July 3.

Leading cryptocurrency Bitcoin surged to a new all-time high of $89,637 on Tuesday. Trump has promised to make the United States "the crypto capital of the planet."

Kyle Rodda, a senior financial markets analyst at Capital.com, stated, "If history is any guide, Bitcoin could easily finish the year around $100,000."

Rodda also noted, "The expectation of U.S. economic outperformance and aggressive trade practices from the Trump administration continues to push the U.S. dollar higher."

Market expectations of Federal Reserve rate cuts are being dialed back, with a decrease at the December meeting now in question.

Decision Desk HQ projected that Trump's Republican Party will control both houses of Congress when he takes office in January, enabling him to pursue an agenda focused on tax cuts and reducing the federal government.

Potentially inflationary tariffs and immigration policies have lowered market odds of a quarter-point Federal Reserve interest rate cut on Dec. 18, from nearly 80% a week ago to about 65%, according to CME Group's FedWatch Tool.

Trump has warned the eurozone will "pay a big price" for not purchasing enough American exports, targeting cars in particular. He has threatened China with blanket 60% tariffs.

The offshore yuan dipped as low as 7.2337 per dollar on Monday, the weakest since Aug. 2, before last trading at 7.2241.

The euro fell to $1.0629 overnight for the first time since April 22, last changing hands at $1.0658. The shared currency faces additional pressure due to political uncertainty in Germany, the bloc's largest economy. Chancellor Olaf Scholz's remaining coalition partner, the Greens, called for an earlier parliamentary vote, paving the way for a snap election.

Sterling remained relatively unchanged at $1.28645.

The yen edged towards last week's three-month low of 154.715 per dollar, losing about 0.1% to 153.865, following a 0.7% slide overnight.