By Rae Wee

SINGAPORE (Reuters) – The dollar is poised for its best week in over a month, supported by expectations of fewer Federal Reserve rate cuts and the potential inflationary impact of Donald Trump's upcoming presidency in January.

The greenback is trading near a one-year high against a basket of currencies at 106.88, aiming for a weekly gain of 1.8%, its strongest performance since September.

The euro is set for its worst weekly performance in seven months, down 1.75% and trading at $1.0530, close to a one-year low from the previous session.

Sterling is also lower, trading 0.02% down at $1.2666 and on track for a weekly loss of 2%, marking its worst drop since January 2023.

Fed Chair Jerome Powell stated on Thursday that there is no need to rush lowering interest rates, citing ongoing growth, a solid job market, and persistent inflation as reasons for caution.

As a result, traders scaled back expectations for the pace of U.S. rate cuts, with Fed funds futures now reflecting only 71 basis points of easing by the end of 2025. Additionally, the likelihood of a 25 basis point cut next month has dropped from 82.5% to 48.3% according to the CME FedWatch tool.

"Markets just took (Powell's) comments at face value and therefore scaled back expectations for the pace of FOMC cuts," remarked Carol Kong, currency strategist at Commonwealth Bank of Australia (OTC:CMWAY) (CBA).

"We still believe a December 25bp cut is likely. Powell's comments underscore the resilience of the U.S. economy. In the near term, we could see further gains in the U.S. dollar due to potential inflation from Trump's policies."

Higher tariffs and tighter immigration policies under Trump's administration are expected to further boost inflation, potentially slowing the Fed's easing cycle in the long term. Increased expectations for deeper deficit spending are also lifting U.S. Treasury yields, providing additional support for the dollar.

Against the strengthening dollar, the yen continues to weaken, last trading 0.2% lower at 156.57 per dollar, and is facing a 2.5% weekly decline. Having fallen approximately 11% since September's peak, the yen is now in the intervention zone for Japanese authorities.

Data shows Japan's economy expanded at an annualized 0.9% over the July-September quarter, a decrease from the previous quarter due to sluggish capital spending.

The Australian dollar decreased by 0.06% to $0.6450, set to lose over 2% for the week, its worst performance in four months. Similarly, the New Zealand dollar is down 0.05% at $0.5846, also tracking a 2% weekly decline near a one-year low.

In cryptocurrency markets, bitcoin dipped below $90,000 as some investors took profits after its rapid rise. Having surged nearly 30% in two weeks due to expectations of favorable U.S. regulation under Trump's administration, the cryptocurrency remains volatile and concerning for some investors.

"Multiple risk factors are converging. With crypto at all-time highs, both FOMO and risks are also at an all-time high," warned Joshua Chu, co-chair of the Hong Kong Web3 Association. "Non-institutional investors indulging in the FOMO rally may be taking on significant risks."