By Brigid Riley

TOKYO (Reuters)

The U.S. dollar maintained a 6-1/2-month high against major currencies, while Bitcoin hovered below record levels as markets anticipated important inflation data later this day.

The dollar benefits from Donald Trump's election, with investors expecting tax cuts and reduced tariffs that may be inflationary. The resulting 'Trump trade' has raised U.S. Treasury yields, as markets predict the Federal Reserve might limit future rate cuts.

The Republican Party is expected to control both Congressional chambers in January, facilitating Trump's tax-cut and federal government reduction agenda.

The U.S. dollar index increased by 0.02% to 106.01, nearing Tuesday’s peak of 106.17, the highest since May 1.

Bitcoin experienced a slight decline of 0.23%, pricing at $87,105.05, after reaching $89,998 on Tuesday. Trump aims to make the U.S. “the crypto capital of the planet.”

Investors await the October Consumer Price Index (CPI) report, predicting a core increase of 0.3%, with significant implications for December's Federal Reserve policies.

Charu Chanana, Chief Investment Strategist at Saxo, noted potential shifts back to inflation and Fed policy trends as the week progresses.

Market consensus indicates a 60% probability of a 25 basis-point rate cut in December, down from approximately 84% previously.

As traders navigate uncertainty regarding Fed policies under Trump, comments from Fed officials, including President Jerome Powell’s upcoming speech, may provide additional insights.

The euro faced pressure due to political instability, particularly in Germany, where elections are scheduled for February 23 after Chancellor Olaf Scholz's coalition collapse. Additionally, traders are wary of potential Trump tariffs impacting Europe and China.

The euro traded slightly lower at $1.061875, near its one-year low of $1.0596. Sterling remained stable at $1.2746, weighed down by a stronger dollar.

Japan's wholesale inflation rose in October due to yen depreciation, complicating the Bank of Japan's interest rate decision. The dollar gained 0.17% against the yen, reaching 154.88.

In Australia, the dollar fell 0.02% to $0.6531 as wages increased at the slowest annual rate since late 2022, amidst fresh worker inflows and lessened inflation, bolstering the case for potential rate cuts.