- Crypto traders are betting that the Dollar Index (DXY), which has recently pulled back, will continue to weaken and that bitcoin’s rally will resume.
- Both Societe Generale (Sydney) and Scotiabank anticipate that the dollar will remain strong due to divergent expectations regarding interest rates.
- Barclays believes that a possible escalation in the trade war between China and the U.S. could be good for the dollar.
The crypto traders expect a new weakness of the U.S. Dollar, which will catalyze the risk-taking that would extend the bitcoin rally. (BTC). Some banks, however, predict continued strength in the dollar.
Bitcoin has traded primarily between $60,000.00 and $70,000.00 since mid-March. CoinDesk Data Show. Bitcoin’s rally, which started in October of last year, is now lagging, probably due to the waning expectations for Fed rate reductions and the recent rise in the dollar index which measures the value of the greenback against other fiat currencies.
According to TradingView’s charting platform, the DXY rose from 102.35 to 106.52 in one week. It has since retreated to 105.70. This gives hope to the crypto bulls.
The DXY Dollar Index has begun to reverse course after hitting resistance at 106. This rally will be boosted if we move towards 102 or 103. It makes sense to time the rally because bitcoin will soon reach $90,000. Mike Alfred said, “I expect DXY to reach 92 by the end of 2025, or even earlier.” Value investor Alpine Fox LP is the founder and managing member of Alpine Fox LP. X said it Tuesday.
The U.S. Dollar is the global invoicing and reserve currency. It plays a significant role in global debt, nonbank lending, and trade. The dollar’s appreciation makes USD debt more expensive. This, in turn disincentivizes financial market risk taking. The opposite is true when the dollar weakens. Over the years, the DXY has tended to be in opposition with bitcoin, the crypto market, and stocks.
Jan Happel, Yan Allemann and co-founders from Glassnode who call themselves Negentropic on X said that the dollar appears to be at the top of an “expanding triangular” pattern, and may slide over the next few weeks. This could drive the crypto market up.
Diverging trendlines that connect higher highs with lower lows form the expanding triangle. The DXY turned down from the upper resistance trendline and could fall to 103 next week.
The dollar is a safe bet for banks
Some banks do not expect a sudden dollar decline.
Kit Juckes leads Societe Generale’s Cross Asset Research Team. According to Kit, it is unlikely that the Fed will cut rates until 2025. This could lead to a DXY high between 107-110.
If the market adjusts now to our forecasts of lower rates (and no more hikes) in 1Q25, then peak 2s will occur. [two-year yield] The research team wrote to its clients in an April 18 note that the DXY should have a positive return of about 5-51/4%.
The team stated that if central banks continue to ease and the Fed remains on hold, then the DXY peak should fall between 107-110. They also expressed the possibility that the market could exceed the target.
Markets expected that the Fed would cut interest rates 100 basis points by 2024, in October when DXY reached its peak above 107 and Bitcoin began to rise. Markets expect this year to see less than two rates cuts.
In a client note dated April 18, Scotiabank expressed a similar view, saying that “a higher Fed for longer likely means a stronger USD for longer.”
Dollars rise on U.S. Tariffs
The U.S. Dollar could be supported by escalating trade tensions between China and the U.S.
Joe Biden, the U.S. president of last week Call for A steep rise in tariffs on Chinese aluminum and steel products from 7.5% to 25%. Tariffs are taxes levied on imports by government. They include freight, insurance and other costs.
Donald Trump, the current Republican candidate for president and former Republican President Donald Trump Has been proposed Implementing a tariff of at least 60% on Chinese imports.
Barclays believes that this could lead to a rise in the US dollar.
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Barclays stressed-tested the scenario where the U.S. would impose a 60 percent tariff on Chinese imports, and found that the DXY could rise by 3% if Trump wins the election later in the year.
Parikshit Miishra is the editor.