TL;DR
- The U.S. dollar index (DXY) rebounded 1.40% to 98.30 after hitting a three-year low.
- Recent strong U.S. economic data and rising interest rates support short-term dollar gains.
- Market jitters over Japan’s upcoming upper house election are also boosting the dollar.
- Analysts caution this rebound is likely a temporary technical correction, not a long-term bullish trend.
- A stronger dollar often pressures Bitcoin prices due to reduced investor risk appetite.
Dollar Index Rebounds After Months of Decline
The U.S. dollar index (DXY) measures the dollar’s value against a basket of major fiat currencies. After experiencing its worst six-month stretch in decades, the dollar has staged a notable recovery, gaining 1.40% to 98.30 from a low of 96.37.
This rebound is considered a bullish technical breakout, breaking above a trendline of lower highs since February, according to data from TradingView.
Why the Dollar’s Strength Matters for Crypto Markets
Historically, a strong dollar leads to tightening in global financial markets, dampening investor risk appetite. Bitcoin and other cryptocurrencies have often moved inversely to the dollar, meaning dollar strength can work against higher Bitcoin prices.
However, this recent dollar surge is widely seen as a temporary correction following its prolonged decline. Marc Chandler, chief market strategist at Bannockburn Capital Markets, noted:
“The dollar’s first consecutive weekly gain since mid-May has been fueled by stronger-than-expected data and a rise in U.S. rates.”
U.S. Economic Data and Interest Rate Trends
Recent U.S. data points, including strong retail sales and jobless claims, have reinforced expectations that the Federal Reserve may delay or reduce the pace of interest rate cuts later this year.
According to ING analysts, this supports the dollar in the near term:
“We expect the remaining 14 basis points projected for September to gradually taper off and put pressure on EUR/USD.”
Impact of Japan’s Upcoming Upper House Election
Market jitters around Japan’s upper house election scheduled for Sunday are also contributing to dollar strength. The election could lead to political uncertainty if the ruling coalition loses its majority.
ING highlighted concerns:
“Japan’s ruling coalition needs at least 50 of 125 seats to secure a majority, but recent polls show it may fall short, sparking worries about fiscal stability and trade negotiations with the U.S.”
There is also speculation of an earlier-than-expected Bank of Japan rate hike, which is unsettling markets.
Expert Views: Short-Term Yen Weakness, Long-Term Dollar Uncertainty
Griffin Ardern, head of options trading at crypto platform BloFin, expects the yen weakness to be short-lived:
“US macro fundamentals have not improved significantly. Inflation is rebounding, and policies like the recently passed One Big Beautiful Bill (OBBBA) will increase the fiscal deficit, keeping inflation expectations elevated.”
