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Crypto investors are currently divided on the US dollar; some expect the currency to weaken, while others predict it will continue to strengthen. This speculation is intertwined with the movement of Bitcoin (BTC), which has been stuck between $60,000 and $70,000 since mid-March. The recent pause in Bitcoin‘s rise is linked to decreased expectations for a Federal Reserve (Fed) rate cut and a recovery in the US Dollar Index (DXY), which measures the value of the US dollar against major fiat currencies.
Focus Shifts to DXY in Bitcoin Analysis
DXY rose from a level of 102.35 on March 8 to a five-month high of 106.52, before retreating slightly to 105.70. This pullback has sparked optimism among crypto enthusiasts, with predictions pointing towards a potential drop to the 102-103 level. Notably, respected investment figure Mike Alfred forecasts that Bitcoin will rise to $90,000 in the short term and, in connection with a weakening US dollar, predicts that DXY will drop to around 92 by the end of 2025.
Conversely, some banking institutions are predicting a continuous strengthening of the DXY, offering a contrary view. Societe Generale‘s Cross Asset Research Team predicts that the Fed is unlikely to cut interest rates before 2025, potentially leading to a peak in DXY between 107 and 110. Similarly, Scotiabank also expects the US dollar to remain strong for a prolonged period based on the Fed’s “higher for longer” forecast.
The dynamic between the US dollar and Bitcoin is closely monitored by investors and traders, with changes in the former often affecting sentiment in the crypto market. Glassnode’s co-founders Jan Happel and Yan Allemann expect a decline in DXY in the coming weeks, which they believe will fuel a rally in the crypto market. Happel and Allemann point to a “broadening triangle” formation on the DXY chart, indicating a potential drop to the 103 level.
Expectations for Moves Strengthening the US Dollar
In addition, geopolitical factors such as trade tensions between the US and China have the potential to influence the direction of the US dollar. Recent proposals by US President Joe Biden and former President Donald Trump to increase tariffs on imports from China could support and strengthen the US dollar.
Barclays’ currency strategy team suggests that US customs tariffs tend to strengthen the US dollar through import substitution, and Trump’s proposal for a 60% tariff rate on imports from China could lead to a 3% rally in DXY if realized.
