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The US Dollar Index (DXY), which measures the value of the US dollar against a basket of international currencies, is expected to be one of the primary drivers driving up the price of Bitcoin (BTC).
Most recently, the DXY has lost 1.1 percent after reaching a six-month high on May 1. According to Bitfinex experts, this decline bodes well for Bitcoin in the second half of 2024.
Historically, Bitcoin and DXY have had a strong inverse connection, which means that a fall in the DXY frequently correlates to an increase in Bitcoin value.
FOMC Policy and Its Impact
According to Crypto Briefing, following last week Federal Open Market Committee (FOMC) meeting, the DXY fell by 1.85 percent through May 3, before recovering somewhat to 105.32 at the time of this research.
This volatility in the DXY is mostly attributable to the FOMC dovish posture, which indicates a possible rate decrease in the near future.
Furthermore, the release of Non-Farm Payroll statistics during the same time period revealed a worsening labor market. This report, which revealed fewer new employment than predicted, drove the US dollar drop.
This, in turn, increases the performance of all risk assets, including Bitcoin and the US equities markets. Investors frequently monitor the relationship between dismal job statistics and risk asset performance.
Slowing Economy and Interest Rates
Concerns about a potential economic downturn arose when employment growth fell short of expectations. The economic slowdown raises the possibility that the Fed will lower interest rates.
Lower interest rates, or merely the expectation of a rate decrease, tend to diminish returns on investments in US dollars, making the currency less appealing. This loss of traction may lead to more deterioration in the DXY.
Bitcoin Optimistic Outlook
As this scenario plays out, it prepares the way for a lower dollar and maybe higher Bitcoin prices in the following months. Bitfinex analysts are optimistic, anticipating a highly positive scenario for Bitcoin in the third and fourth quarters of this year.
However, they emphasized that market uncertainty is likely to persist in the short term, resulting in a low volatility environment until the Federal Reserve begins to reverse its quantitative tightening (QT) policies in June.
Bitcoin Post-Halving Accumulation Phase
The post-halving stage in the Bitcoin cycle is also important to consider. According to trader Rekt Capital, the Bitcoin price is presently in a post-halving accumulation period, as seen in prior cycles.
"Bitcoin will retrace deeply enough to convince you that the bull market is over, and then resume its uptrend," Rekt Capital wrote in a tweet.
During this period, Bitcoin generally undergoes big drops, upsetting the faith of investors who may have felt that the bullish cycle had ended, only to continue its upward trajectory.
This cycle of collapse and recovery not only challenges the endurance of long-term investors, but also allows new investors to enter the market at lower prices.
Anticipation of QT contraction, as well as the possible impacts of continuing economic uncertainty, may influence market movements.
DXY fluctuations are very interesting to Bitcoin investors and experts. A declining dollar frequently triggers a change in investor preferences toward alternative assets, including cryptocurrencies like Bitcoin.
As the dollar weakens, Bitcoin attractiveness may increase, particularly as a hedge against inflation and currency depreciation.
Furthermore, the global economic environment has a substantial impact on the trajectory of the dollar and Bitcoin.
Geopolitical concerns, trade discussions, and foreign policy changes all have the potential to affect market mood and currency strength. Let watch.
