The U.S. Dollar Holds Strong Despite Economic Woes, Will Crypto Suffer?

Paigambar Mohan Raj
Source: Reuters

The US dollar’s 2% jump in the last month has left many people confused in the traditional and crypto markets. With inflation in the U.S. going down, many expect the Federal Reserve to pause, or even lower, interest rates. This should have ideally meant that the dollar should go down.

However, that is not the case as the Dollar Index (DYX) is the highest it has been in two months. Currently, the DYX is at 103.31. The DYX measures the dollar’s performance against a basket of six key foreign currencies.

According to analysts, a variety of factors are likely in play that are enhancing the dollar’s reputation as a safe haven. According to Esther Reichelt, a currency strategist at Commerzbank, the dollar’s rise “is largely driven by increased safe-haven demand in view of ‘unknown unknowns’.”

A somber outlook for the global economy might have played a hand in the desire for safe-haven assets. Other concerns include the U.S. debt ceiling talks, financial stability, and the future of the global economy. Democrats and Republicans are getting closer to agreeing to raise the borrowing ceiling of $31.4 trillion. However, there is a chance of a U.S. debt default at a time when many banks appear to be weak.

Will a rising U.S. Dollar pose a threat to crypto?

The U.S. dollar and the crypto markets have historically been inversely correlated. This means that a rising dollar might not be good news for crypto investors. The only time the correlation was not inverse was when crypto-specific factors overshadowed the dollar trends.

However, Bitcoin (BTC) has already fallen below $27k once again, after briefly touching $30k in mid-April. The rising value of the U.S. dollar might have played a hand in the dwindling value of the original crypto.

Although many are hopeful for BTC to rise once again, there aren’t many factors to support a rally right now. It is possible that BTC will slowly climb down to somewhere between $22k-$24k before showing some positive price action.

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