The dollar returns in force before a decisive CPI

The US dollar is returning to levels it has not seen for 18 months. The DXY is trading around 102.2 after starting from around 98.8 in early September. For crypto, the timing is bad: the United States will publish its September CPI on October 14, just two weeks before the Fed’s next decision. Bitcoin had resisted the rise of the dollar in September. Now he has to start again.

The dollar returns to an 18-month high

The ascent was quick. The Dollar Index was hovering around 98.8 at the start of September. It now exceeds 102 and has crossed its July peaks located around 101.6. The movement had already started to surprise at the end of September. The crypto then rose at the same time as the dollar, a fairly unusual configuration after several periods during which the two assets had moved in opposite directions.

The DXY gained almost 2% in the month of September alone. Several elements support the greenback. US bond yields remain high, Europe is going through new budgetary and political tensions and conflicts in the Middle East are also pushing some investors towards safe haven assets.

The market is now around a technical zone that has been monitored for several years. The analysts do not agree on what to do next. Some view the current rise as simply a return to an old trendline before a possible rejection. Others still see the dollar in a much longer bullish cycle. The CPI can decide between some of these scenarios.

For Bitcoin and the crypto market, a lastingly strong dollar could increase selling pressure, while a pullback fueled by expectations of a Fed rate cut would encourage a return of risk appetite.

CPI comes just ahead of next Fed decision

On Wednesday October 14, investors will have their eyes on the United States. The Bureau of Labor Statistics will release the September Consumer Price Index (CPI), a key indicator for future Federal Reserve decisions. Producer price (PPI) and retail sales figures will follow, before the Fed meeting scheduled for October 28.

In September, the US central bank raised rates by 25 basis points, bringing their target range to between 3.75% and 4%. This was its first increase since July 2023. Since then, expectations have evolved. According to CME FedWatchthe markets estimated the probability of maintaining rates in October at 82.8%, compared to only 51% a month earlier.

But these forecasts remain fragile. Inflation above expectations could revive fears of further monetary tightening and support the dollar. For Bitcoin and the rest of the crypto market, this scenario could increase selling pressure, particularly if US bond yields increase. Conversely, a weaker CPI could ease rate tensions and restore momentum to risky assets. Everything will now depend on the gap between the published figures and market expectations.

Bitcoin has already resisted the dollar once

A strong DXY is generally not good news for risky assets. When the dollar rises and US yields become more attractive, capital has more alternatives to stocks and cryptos.

September, however, produced an interesting anomaly. Bitcoin gained 6.14% during the month while the DXY also increased by almost 2%. The inverse relationship observed on several occasions between the two markets has therefore temporarily weakened.

This resistance had already been visible after the September rate increase: Bitcoin had moved relatively little despite the return of monetary tightening. October is less comfortable. The total capitalization of the crypto market has fallen by around 1.4% since the start of the month according to data reported by BeInCrypto. Bond yields, oil and the dollar continue to weigh on risk appetite. The DXY therefore reaches an important level at the same time as the CPI. If it declines after inflation, Bitcoin would lose one of its macroeconomic headwinds. If it clearly exceeds its recent peak, September will simply have offered a first glimpse of bitcoin’s resistance. This time, the dollar is even higher.