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The dollar crept higher on the first trading day of the year as attention turned to economic data this week that may provide clues on the Federal Reserve's next moves, while bitcoin surged ahead of $45,000 for the first time since April 2022.

The dollar index
DXY
, which measures the U.S. currency against six rivals, fell 2% in 2023, snapping two years of gains. It was last at 101.44, up 0.059%, as investors weighed the prospect of the Fed cutting rates this year.

The dollar's ascent weighed on the Japanese yen

USDJPY
the most, with the Asian currency down 0.35% at 141.36 per dollar, having slid 7% in 2023.

Rescue teams in Japan on Tuesday struggled to reach isolated areas hit by a powerful earthquake on New Year's Day, with reports of more than 20 people dead in a disaster that toppled buildings and knocked out power to thousands of homes.

Markets are now pricing in an 86% chance of interest rate cuts from the Fed to start from March, according to CME FedWatch tool, with over 150 basis points (bps) of easing anticipated in the year.

"The question is when and how fast rate cuts will be delivered," Marc Chandler, chief market strategist at Bannockburn Global Forex, said in a note.

"Moderating price pressures and weaker growth impulses have seen the pendulum of market sentiment swing dramatically from the 'higher for longer' mantra of most of last year to pricing in aggressive easing" from central banks, Chandler said.

The focus now switches to a slew of economic data due this week, including the data on job openings and nonfarm payrolls. Minutes from the last Fed meeting in December are scheduled for release on Thursday and will provide insight into the central bankers' thinking around rate cuts this year.

"The positive sentiment from end-2023 may roll over into this week as all eyes turn to the U.S. jobs report on Friday," said Nicholas Chia, macro strategist at Standard Chartered.

At its December policy meeting, the Fed adopted an unexpectedly dovish tone and forecast 75 basis points in rate reductions for 2024.

That contrasted with other major central banks, including the European Central Bank (ECB) and Bank of England (BoE), which reiterated they will hold rates higher for longer.

Still, traders are pricing in 158 bps of cuts by the ECB this year, while the BoE is also expected to cut rates by 144 bps in 2024.

The euro

EURUSD
was down 0.13% to $1.103, inching away from the five-month peak of $1.11395 it touched last week. The single currency gained 3% last year, its first yearly gain since 2020.

Sterling

GBPUSD
was last at $1.2729, up 0.05% on the day, having clocked its strongest performance last year since 2017 with a 5% gain, although a weakening economy and election uncertainty make a repeat performance unlikely.

Elsewhere, the Australian dollar

AUDUSD
was up 0.35% at $0.68335. The New Zealand dollar

NZDUSD
was little changed at $0.63155.

The crypto world started the year with a bang, with bitcoin
BTCUSD
touching a 21-month peak of $45,532 on rising expectations that the U.S. Securities and Exchange Commission would soon approve exchange-traded spot bitcoin funds.

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