The dollar traded steady on Monday ahead of the US Federal Reserve's January policy meeting later this week, while bitcoins lay bruised near a six-month low over the weekend, hurt by a sell-off in technology stocks.
Markets were put on the leash by the Fed. And this week, it will be another tug and yank, said Frederic Neumann, HSBC's co-head of Asian economics research, in a morning note.
Currency markets are affected by attempts to predict when and how quickly central banks will raise interest rates and conclude the stimulus programmes launched by the central banks when COVID 19 hits.
The guidance that Chair Powell may give at his press conference about quantitative tightening later in 2022 will cause investors to scurry, according to Neumann, who said he was not expecting a policy change.
The Fed's Federal Open Market Committee kicks off its two-day meeting on Tuesday, with some analysts saying it is possible, though unlikely, that it will raise interest rates for the first time since the Pandemic began.
We consider the higher risk because of the statement from the FOMC, which portrays an urgency to act soon, likely in March, in the face of very high inflation. In a note from Commonwealth Bank of Australia, the urgency could culminate in a decision to stop quantitative easing by mid-February.
A bullish statement and a faster end to the QE programme could encourage markets to price a risk of a 50 bp rate hike in March, they said, because they believed that this would lead to a knee-jerk reaction higher in the dollar.
The dollar index, which measures the dollar against six major peers, was steady at 95.682 on Monday morning.
The Bank of Canada's January meeting will be held in January, wrapping up just before the Fed, where a rate hike is possible, and Australian inflation data due Tuesday, which will guide the Reserve Bank of Australia's position at its meeting next month.
The Aussie dollar was at $0.7180 on Monday morning, the lowest end of its recent range. The risk-friendly currency sold off last week as traders dumped assets like equities, as well as riskier assets like cryptocurrencies.
It was at $36,026, its lowest level since July 2021, having fallen 10% on Friday and dropping as low as $34,000 on Saturday.
Since its record peak of $69,000 in November, the world's largest coin has nearly halved in value.
The sell-off hurt most digital assets, and ether, the world's second largest criptocurrency was at $2,516, the world's second largest criptocurrency hit its lowest level since July on Saturday, which was $2,300.
As institutional investors increase their exposure to cryptocurrencies, their moves are more closely correlated with other risk assets, according to traders.
The Nasdaq Composite lost 7.55% last week, its worst week since March 2020.
In traditional currency markets, sterling was near a two-week low at $1.3551 and the euro was at $1.1333.
The yen was at the stronger end of its recent range, with a dollar at 113.7 yen not far from the 113.47 touched 10 days earlier. A fall below that level would be a five-week low for the dollar.