FameEX Hot Topics | Dollar Slump Fuels Bitcoin Optimism, But Macro Risks Could Stall $120K Breakout

Bitcoin has long exhibited an inverse correlation with the U.S. Dollar Index (DXY), which measures the dollar’s value relative to a basket of major global currencies. Although this relationship can fluctuate, a notable development occurred last Friday when Bitcoin fell below $114,000 just as the DXY climbed to its highest point in over two months. As the dollar’s momentum begins to reverse, Bitcoin traders are now watching closely for a potential rebound toward the key $120,000 level.

On Wednesday, the DXY slipped to 98.5, retreating after an unsuccessful attempt to reclaim the 100 mark the previous Friday. The decline followed a weaker-than-expected U.S. jobs report for July, which led investors to price in a higher likelihood of multiple interest rate cuts by the Federal Reserve. According to Bloomberg, this reduced the dollar’s yield advantage, further contributing to its decline. Meanwhile, Reuters highlighted inflationary risks stemming from new import tariffs on dozens of countries, a move that could raise domestic prices and complicate future monetary policy decisions.

While a softer U.S. dollar often benefits Bitcoin, the effect isn’t guaranteed. If investors grow concerned about an impending economic slowdown or become broadly risk-averse, they may reduce exposure to speculative assets like Bitcoin despite a weaker dollar. A historical case in point occurred between June and September 2024: despite the DXY falling from 106 to 101, Bitcoin struggled to maintain gains and eventually dropped to $53,000 by early September, underscoring the influence of broader market sentiment.

Beyond currency dynamics, the corporate bond market—which SIFMA Research values at $11.4 trillion—also plays a significant role in shaping investor behavior. Rising credit spreads increase refinancing and issuance costs for companies, potentially lowering profit expectations and prompting sell-offs across equities and crypto. If the ICE BofA High Yield Option-Adjusted Spread rises sharply, investors could rotate into short-term U.S. Treasurys or foreign assets, further weakening the dollar but also dampening appetite for Bitcoin.

Given these intersecting factors, it remains too early to conclude that Bitcoin will reclaim $120,000 in the near term. Continued labor market uncertainty and escalating trade tensions—especially surrounding AI-related tech imports—are clouding the short-term outlook and tempering bullish momentum.

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