The Dollar Strength Index (DXY) reached its highest level in nearly 10 months on September 22, indicating growing confidence in the US dollar compared to other fiat currencies. This surge in demand for the US dollar has raised concerns among investors about its potential impact on Bitcoin and cryptocurrencies. However, it is important to note that these concerns may not be directly connected. Additionally, the increase in the DXY does not necessarily reflect confidence in the economic policies of the US Federal Reserve, as investors may choose to sell US Treasuries and hold cash, which could indicate a looming recession or increased inflation.
Despite fears of inflation and economic slowdown in the US, the US dollar has exhibited strength in September. Market expectations for US gross domestic product growth in 2024 are lower than the previous four-year average, attributed to factors such as tighter monetary policy, rising interest rates, and diminishing fiscal stimulus. However, not every increase in the DXY reflects confidence in the Federal Reserve’s economic policies. For example, investors opting to sell US Treasuries and hold cash suggests a potential recession or higher inflation.
Investors currently anticipate that the Federal Reserve will continue raising interest rates, allowing them to capture higher yields in the future. If investors lack confidence in the Fed’s ability to curb inflation without causing economic harm, a stronger DXY may not lead to reduced demand for Bitcoin. Additionally, as the government increases the money supply through raised debt ceilings and increased liquidity in the markets, Bitcoin may become more favorable as investors seek refuge in alternative assets to protect against stagflation. Therefore, the DXY golden cross may not necessarily have a negative impact on Bitcoin, particularly in the long run.