Crypto Analysts Sound Alarm as US Dollar Index Hits 2-Month High

The US Dollar Index (DXY) has rebounded since the Federal Reserve’s rate cut in September. Even as expectations grow for another rate cut in October, the DXY reached its highest level in two months.

This movement seems to contradict what many crypto market analysts had predicted. Why is this happening, and what impact could it have?

Why Is the DXY Rising Despite Fed Rate Cuts?

Normally, a Fed rate cut signals potential dollar depreciation. Investors often respond by seeking alternative assets like gold or cryptocurrencies to preserve value.

However, data shows that since the mid-September rate cut, the DXY has climbed steadily from a low of 96.2 to 98.9 points — its highest level in two months.

DXY Volatility After The FED Cut Interest Rates in September. Source: DXY Volatility After The FED Cut Interest Rates in September.

Francesco Pesole, a foreign exchange strategist at ING, explained that the dollar’s strength comes from political instability in France and Japan. This has weakened the euro and yen, which together make up 71% of the DXY basket.

Additionally, investor Tom Capital noted that Commodity Trading Advisors (CTAs) repurchasing the dollar have accelerated its recovery.

Analyst Axel Adler Jr. observed that the US government shutdown might have influenced the DXY’s rise in early October. The shutdown delayed economic data releases and reduced discussions of further rate cuts, creating favorable conditions for a dollar rebound.

Market analyst The Great Martis predicted that the DXY’s recovery could continue amid ongoing European political and economic uncertainty.

“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.

Impact on Bitcoin and the Crypto Market

Bitcoin’s recent decline has coincided with a recovery in the DXY index, highlighting the return of their inverse correlation.

Bitcoin Down And DXY up. Source: Bitcoin Down And DXY up.

From a technical standpoint, analysts highlighted two important signals. First, the DXY has reclaimed its 14-year support trendline — a key long-term indicator. Second, the inverse head-and-shoulders pattern has confirmed a potential trend reversal from bearish to bullish.

Both signals suggest the DXY may continue to rise. If this uptrend persists through October, it could be a headwind for Bitcoin, complicating its price movement this month.

“DXY is still pushing up. I would not be catching any falling knives right now on Bitcoin or crypto markets,” trader ImNotTheWolf commented.

However, many investors believe that the DXY’s rebound may only put short-term pressure on Bitcoin. High expectations for an October rate cut and gold’s continuous record highs suggest that the US dollar remains far from being a long-term investment priority.