BTC Cheers Dollar Weakness, But TradFi Experts Remains Bullish on Greenback
Bitcoin (BTC) surged to a three-week high early Tuesday, tracking continued weakness in the US dollar. However, it may be too soon for Bitcoin supporters to throw caution to the wind. As several investment institutions believe the greenback will soon regain its mojo.
According to CoinGabbar statistics, the leading cryptocurrency soared over $22,600 during Asian trading hours. This records the highest level since Aug. 19, reflecting a 21% increase in seven days.
The dollar index, which measures the value of the greenback versus major fiat currencies, was trading down at approximately 108. The indicator topped 110 last week as the European Central Bank raised interest rates, putting a floor under the euro and lowering inflation expectations.
Dick Lo, founder and CEO of quant-driven trading firm TDX Strategies, stated that “the recent market fluctuations are largely driven by a downturn in the dollar index as well as position unwinds ahead of the ETH Merge.”
According to ING's Global Head of Markets, Chris Turner, the dollar's pullback might be temporary.
“With the Fed expected to hike another 75 bps next week and release updated quarterly estimates, we doubt much momentum would be behind a dollar correction,” Turner said in Monday's edition of the FX market report. “Next week, we expect the price to rise back above 110.00.”
Bitcoin moves in the opposite direction of the US dollar. This year, the cryptocurrency's market value has halved to $427 billion, with the DXY surging more than 10% in response to the US Federal Reserve's rapid-fire rate hikes. This year, the Fed hiked rates by 225 basis points, increasing the benchmark borrowing cost to 2.25%-2.5%.
Turner said the money markets are already pricing in a 4% interest rate for next spring and that Tuesday's CPI data in the US might indicate core inflation remained stable in August. Core inflation excludes the volatile food and energy components, which have cooled in recent weeks.
As a result, a stable core figure would imply that underlying inflation remains high. Doubts are being raised on confidence as a result of the recent drop in market-based measures of inflation expectations, potentially halting the DXY's decline.
The Labor Department will issue the August inflation data on Tuesday at 06:00 PM IST. The FactSet survey predicts that CPI will have increased 8.1% over the past 12 months, following July's 8.5% reading and June's 9.1% print. The core CPI is estimated to have increased to 6.1% from 5.9%.
UBS, a multinational investment firm, expects the dollar to stay well supported in the near term.
“We think investors should brace themselves for prolonged dollar gain in the coming months,” stated the bank's analysts, led by CIO of global wealth management Mark Haefele, in a client note released on September 9.
The team believes that the combination of a weaker growth outlook for the Eurozone and China, as well as reasonably strong US economic data, will keep the DXY in demand.
According to UBS, the Fed will wait for a three-month run of modest month-over-month price increases — along with signs that the labor market is cooling — before easing its stance.
While bitcoin has risen by double digits in the last seven days, the broader downtrend, as represented by trendlines linking the November 2021 and March 2022 highs, remains intact.
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