The United States dollar is on track for its “most successful 5-day streak” since February 2023, while Bitcoin (BTC) has experienced a decline during this period due to expectations of high interest rates and the upcoming halving event on April 20.
The strengthening of the dollar can be attributed to the anticipation of sustained higher interest rates, as stated by trading resource The Kobeissi Letter. Just a month ago, the market was expecting the Federal Reserve to start cutting rates in June, but now it is believed that rates will remain high for a longer period of time.
Higher interest rates typically attract foreign investors who seek greater returns on bonds and term deposits, therefore increasing the demand for the dollar.
The Bloomberg Dollar Spot Index (BBDXY), which measures the performance of a basket of 10 major global currencies against the U.S. dollar, has risen by approximately 2% in the past 5 trading days, marking its biggest increase in 14 months.
According to the BBDXY, the U.S. dollar index score now stands at 106.34, up from 105.28 five days ago, indicating that the dollar has strengthened against the other nine currencies included in the index, including the euro, pound, and yen.
On the other hand, Bitcoin has witnessed a 9% price decrease over the past five days, reaching $63,936, according to CoinMarketCap data. While Bitcoin and the dollar do not always move in the same direction, they have historically shown an inverse relationship.
Federal Reserve Chair Jerome Powell recently stated that the country’s inflation rate, currently at 3.5%, is not moving towards the central bank’s 2% target, suggesting that it may take longer than expected to achieve the desired confidence.
Trader Justin Spittler has warned that whenever the U.S. dollar has reached “overbought levels” in the past, it has been followed by a significant correction.
Bitcoin, being a more volatile asset, typically experiences increased demand when the dollar weakens. However, the upcoming Bitcoin halving, scheduled for April 20, also plays a role. This event will reduce the amount of BTC that can be mined per block by 50%.
Interestingly, compared to the 2020 halving event, crypto investors are displaying more confidence in riskier crypto assets. Three days before the 2020 halving, Bitcoin dominance stood 15% higher than its current level, while the U.S. dollar was 6% weaker. Currently, Bitcoin’s dominance stands at 52%, according to CoinStats.
The recent rise in the U.S. dollar has also led to a decrease in the crypto market sentiment, as indicated by the Crypto Fear and Greed Index, which has dropped by 11 points since April 10.
It is important to note that this article does not provide investment advice or recommendations. Readers should conduct their own research before making any investment or trading decisions.