US dollar index hits two-month high despite Fed rate cuts
The US Dollar Index (DXY) has climbed to its highest level in two months, reaching 98.9 points since the Federal Reserve's September rate cut. This rebound contradicts expectations of dollar weakening and coincides with Bitcoin's decline, highlighting their inverse correlation. Analysts attribute the rise to global political instability and market dynamics.
The DXY rebounded steadily from a low of 96.2 points following the mid-September Federal Reserve rate cut, even as markets anticipate another cut in October. This movement bucks the typical response where rate cuts lead investors to alternative assets like cryptocurrencies to hedge against dollar depreciation.
Francesco Pesole, a foreign exchange strategist at ING, pointed to political instability in France and Japan as key drivers, weakening the euro and yen—which comprise 71% of the DXY basket—and bolstering the dollar. Investor Tom Capital noted that Commodity Trading Advisors (CTAs) accelerating dollar repurchases further fueled the recovery. Analyst Axel Adler Jr. linked the early October surge to a US government shutdown, which delayed economic data releases and muted discussions on additional rate cuts, creating conditions for the dollar's rebound.
Market analyst The Great Martis forecasted continued strength amid European challenges. “As Europe faces severe headwinds, government turmoil, bond erosion, and rising debt servicing obligations, the dollar index is poised to rise in the coming weeks,” The Great Martis predicted.
Technically, the DXY has reclaimed its 14-year support trendline, and an inverse head-and-shoulders pattern signals a potential bullish reversal from bearish trends. This uptrend, if it persists through October, poses headwinds for Bitcoin and the crypto market, where prices have fallen in tandem with the DXY's rise.
Trader ImNotTheWolf cautioned, “DXY is still pushing up. I would not be catching any falling knives right now on Bitcoin or crypto markets.” However, many view this as short-term pressure, with high expectations for an October rate cut and gold's record highs indicating the dollar may not remain a long-term priority.