The US dollar on Tuesday inched upwards, mirroring the ascent in US Treasury yields, prompting investors to question the validity of market expectations for interest rate cuts this year.

In the realm of cryptocurrencies, bitcoin has maintained its position near its highest level since April 2022, fueled by growing expectations of imminent approval for spot bitcoin exchange-traded funds (ETF) by the Securities and Exchange Commission (SEC).

Money market traders are factoring in approximately 135 basis points worth of easing for the Federal Reserve this year, with a roughly 60% chance that rate cuts might commence in March.

Kamal Sharma, senior G10 FX strategist at Bank of America, remarked that the dollar's trajectory this year is not a straightforward path, largely influenced by developments in US fixed-income markets.

The US benchmark 10-year yield rose by 4.5 basis points on Tuesday to 4.0455%, continuing its upward trend from its lowest point in July at 3.783% at the end of last year.

BofA's Sharma added, "The market is still trying to find its feet in terms of the trajectory and timing of the first US rate cut," anticipating the Fed to initiate rate cuts at its March meeting. The base case scenario presented is a soft landing, a lower dollar, and bull steepening, broadly supportive of risk assets.

The US dollar index, measuring the greenback against a basket of six currencies, rose by over 0.1% to 102.42, following a 1% gain the previous week. The euro stood at $1.0934, recovering from its recent three-week low, while sterling dipped 0.2% to $1.2721.

In Asia, data on Tuesday revealed a slowdown in core inflation in Japan's capital for the second consecutive month in December, relieving some pressure on the Bank of Japan to hastily exit ultra-loose monetary policy. The yen experienced marginal changes, standing at 144.01 per dollar, up 0.1%.

The Aussie rebounded to $0.6698, bouncing back from its three-week low, and the Kiwi slipped 0.2% to $0.6243 but remained above its recent three-week trough.

Bitcoin was valued at $46,708, having reached a 21-month high of $47,281 in the prior session. Investment managers disclosed fees for proposed spot bitcoin ETFs, heightening expectations for approval by the US securities regulator this week.

Ben Laidler, eToro global markets strategist, noted that investor expectations are high, with increased engagement from the SEC. He cautioned that there could be downside risks if the outcome is disappointing, and some investors might be tempted to'sell the news' even on a positive result.

The second-largest cryptocurrency fell by 1.4% to $2,299 in this dynamic market environment.