The US dollar index (DXY) has rebounded since the Federal Reserve’s interest rate cut in September. DXY hit a two-month high as expectations for further interest rate cuts in October rise.
This move seems to contradict the expectations of many crypto market analysts. Why is this happening? And what impact could it have?
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Why is DXY rising despite Fed rate cuts?
A Fed rate cut typically signals a potential weakening dollar. Investors often respond by seeking alternative assets such as gold and cryptocurrencies to preserve value.
However, data shows that since the mid-September rate cut, DXY has steadily risen from a low of 96.2 points to 98.9 points, its highest level in two months.
Francesco Pesole, foreign exchange strategist at ING, explained that the dollar’s strength was due to political instability in France and Japan. As a result, the euro and yen, which account for 71% of the DXY basket, fell.
Additionally, investor Tom Capital pointed out that dollar buybacks by Commodity Trading Advisors (CTA) accelerated the dollar’s recovery.
Analyst Axel Adler Jr. noted that the U.S. government shutdown may have influenced DXY’s rally in early October. The government shutdown delayed the release of economic data and reduced discussions of further interest rate cuts, creating favorable conditions for a rebound in the dollar.
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Market analyst The Great Martis predicted that DXY’s recovery could continue amid continued political and economic uncertainty in Europe.
“The dollar index will rise in the coming weeks as Europe faces severe headwinds, government turmoil, falling bonds and rising debt service obligations,” Great Martis predicted.
Bitcoin and its impact on the virtual currency market
Bitcoin’s recent decline has coincided with a recovery in the DXY index, highlighting the return of its inverse correlation.
From a technical perspective, analysts highlighted two important signals. First, DXY has regained its 14-year support trendline, an important long-term indicator. Second, an inverted head-and-shoulders pattern confirmed a possible bearish-to-bullish trend reversal.
Both signals suggest that DXY may continue to rise. If this uptrend continues into October, it could create headwinds for Bitcoin and complicate price movements this month.
Trader ImNotTheWolf commented: “DXY is still rising. For now, I don’t think it will catch a falling knife in the Bitcoin or crypto market.”
However, many investors believe that DXY’s pullback may only put short-term pressure on Bitcoin. High expectations for an October rate cut and continued highs in gold prices suggest that the US dollar is far from a long-term investment priority.
