Stronger Greenback Puts Pressure on Risk Assets Like Bitcoin
The U.S. dollar index (DXY) has rebounded by 1.40% from a multi-year low, raising questions about the currency’s trajectory amid shifting economic data and global market jitters. While this bounce is technically significant, analysts caution against expecting a long-term bullish trend.
The index currently stands at 98.30, up from a recent low of 96.37, marking its first back-to-back weekly gain since May.
“This is a technical correction — not the start of a new uptrend,” says Marc Chandler, chief strategist at Bannockburn Capital.
Short-Term Tailwinds: Strong U.S. Data and Rising Rates
The rebound has been fueled by better-than-expected U.S. retail sales and jobless claims, along with a sharp shift in rate expectations. Futures markets have reduced the likelihood of a September Fed rate cut, with just 14 basis points of easing now priced in.
This more hawkish stance has pushed yields higher, giving the dollar room to recover.
ING analysts noted, “The unwinding of September rate cut bets, combined with strong U.S. data, could keep the dollar supported in the near term.”
Japan’s Political Uncertainty Adds Fuel to Dollar Rally
Another unexpected factor supporting the DXY is political uncertainty in Japan ahead of Sunday’s Upper House election. The ruling coalition must win at least 50 of 125 seats to maintain control, but recent polling shows the Liberal Democratic Party and Komeito may fall short.
This has sparked capital outflows from Japanese markets, driving the USD/JPY pair toward the critical 150.0 level.
ING added: “The risk of a Bank of Japan surprise rate hike and the political shake-up are both contributing to yen weakness.”
Crypto Market Implications: Headwinds for Bitcoin
Historically, a strong dollar spells trouble for Bitcoin and other risk assets. As the dollar tightens financial conditions globally, investor appetite for speculative assets like crypto declines.
“All things equal, a rising DXY has a negative correlation with Bitcoin,” said Griffin Ardern of BloFin.
However, Ardern warns that the macroeconomic fundamentals in the U.S. haven’t improved enough to sustain the dollar’s strength.
He cites the OBBBA bill (One Big Beautiful Bill) and rising inflation expectations as ongoing pressure points for the U.S. economy. “Trump’s comments and policy direction are adding to inflation fears, not reducing them,” he said.
Don’t Count on a Dollar Comeback Just Yet
While the dollar’s recent bounce may extend further, analysts widely agree it’s a short-term correction, not a full reversal of the downward trend. Rising U.S. rates and Japanese election uncertainty are driving this rally, but the broader macro outlook remains fragile.
For crypto traders, especially those betting on Bitcoin, a stronger dollar could pose temporary resistance. But over the long haul, the lack of fundamental support for the greenback may keep crypto sentiment intact — especially if inflationary pressures persist.
Disclaimer
This content is for informational purposes only and does not constitute financial, investment, or legal advice. Cryptocurrency trading involves risk and may result in financial loss.