The US Dollar Index (DXY) has experienced a notable rebound following the Federal Reserve’s decision to cut interest rates in September. Despite rising expectations for another rate cut in October, the DXY has reached its highest level in two months, contradicting predictions made by many cryptocurrency market analysts. This unexpected movement raises questions about the dynamics at play and the potential implications for various markets.
Typically, a cut in Federal Reserve interest rates is associated with a depreciation of the dollar. Investors tend to shift their focus toward alternative assets such as gold or cryptocurrencies in a bid to safeguard their wealth. However, since the mid-September rate cut, the DXY has climbed steadily, surging from a low of 96.2 to 98.9 points. Analysts point to several underlying factors contributing to this rise.
According to Francesco Pesole, a foreign exchange strategist at ING, the strength of the dollar is largely attributed to political instability in key economies like France and Japan. These factors have served to weaken both the euro and the yen, which collectively represent approximately 71% of the DXY basket. Furthermore, investor Tom Capital highlighted an increase in Commodity Trading Advisors (CTAs) repurchasing the dollar, accelerating its recovery.
The potential impact of the ongoing US government shutdown is also noteworthy. Market analyst Axel Adler Jr. observed that the shutdown has delayed the release of crucial economic data and minimized discussions around additional rate cuts. This situation has created conditions favorable for a rebound of the dollar.
Looking ahead, market analyst The Great Martis speculated that the DXY’s recovery could persist amid a backdrop of European political and economic challenges. He noted that with Europe grappling with severe difficulties, including governmental turmoil, bond erosion, and rising debt obligations, the DXY is positioned to rise further in the coming weeks.
Simultaneously, Bitcoin has faced challenges during this period of DXY recovery, highlighting the inverse relationship that has characterized their price movements. This trend is underscored by the DXY reclaiming its 14-year support trendline and confirming a potential trend reversal from bearish to bullish through the recognition of an inverse head-and-shoulders pattern.
Given these indicators, should the upward momentum of the DXY continue through October, it is anticipated that this could present headwinds for Bitcoin, complicating its price trajectory for the month. Trader ImNotTheWolf cautioned others against investing in Bitcoin or the broader crypto markets while the DXY maintains its upward trajectory.
However, many investors harbor the view that the DXY’s rebound may only exert short-term pressure on Bitcoin. With expectations for a potential rate cut in October and gold prices achieving record highs, the prevailing sentiment suggests that the US dollar is unlikely to become a long-term investment priority in the current climate.
