FameEX Hot Topics | Weak Dollar Lifts Bitcoin’s Prospects, Though Economic Risks May Delay $120K Surge

Bitcoin has historically maintained an inverse relationship with the U.S. Dollar Index (DXY), which tracks the dollar’s strength against a basket of major foreign currencies. While this correlation can shift depending on macroeconomic factors, a notable moment occurred last Friday when Bitcoin dropped below $114,000 just as the DXY surged to its highest level in more than two months. As the dollar begins to weaken again, traders are cautiously optimistic about a potential rebound that could push Bitcoin back toward the crucial $120,000 level.

The DXY fell to 98.5 on Wednesday after failing to reclaim the psychologically important 100 level the week prior. This decline followed a weaker-than-expected U.S. jobs report for July, which prompted increased market expectations of several interest rate cuts by the Federal Reserve. Bloomberg noted that this shift in monetary policy outlook diminished the dollar’s yield appeal. Additionally, Reuters reported that fresh U.S. import tariffs targeting numerous trade partners may drive domestic prices higher, adding inflationary pressure and further complicating the Fed’s decision-making process.

Although a weakening dollar often supports Bitcoin’s price, the effect is not guaranteed. Broader market sentiment and investor risk appetite still play critical roles. If investors begin to anticipate a U.S. economic downturn or adopt a more defensive stance, they may exit risk assets such as Bitcoin, even as the dollar declines. A recent example occurred between June and September 2024: during that time, the DXY fell from 106 to 101, yet Bitcoin failed to hold its gains and eventually slid to $53,000, illustrating how external risk factors can overshadow currency movements.

Another key variable is the U.S. corporate bond market, which holds approximately $11.4 trillion in assets, according to SIFMA Research. If credit spreads widen—raising borrowing costs for corporations—earnings expectations could fall, potentially triggering equity and crypto market pullbacks. A significant rise in the ICE BofA High Yield Option-Adjusted Spread may also push investors toward safer or higher-yielding alternatives, further impacting Bitcoin demand.

In light of these uncertainties, it is premature to assume Bitcoin will soon reclaim $120,000. Labor market fragility, geopolitical tension, and inflationary risks continue to shape a cautious and volatile market environment.

Disclaimer: The information provided in this section is for reference only and does not represent any investment advice or the official views of FameEX.