US Dollar Bounces, Gold Pauses Rally: What’s Next for Bitcoin?

Bitcoin is stuck in a macro tug of war as the U.S. dollar strengthens following the U.S. Federal Reserve’s measured dovishness, with gold settling lower after Wednesday’s record high. 

The conflicting signals have left the crypto trading in a tight range, lagging the record-breaking momentum in equity markets and gold.

The Fed’s quarter-point “insurance cut” last week successfully calmed front-end rates but sparked a sell-off in long-term Treasuries, pushing yields higher, Singapore-based trading desk QCP Capital noted in a Wednesday post. 

Fed Chair Jerome Powell’s emphasis on a cautious path forward provided much-needed relief for the U.S. Dollar Index (DXY), which measures the dollar’s performance against a basket of currencies, leading to a 1.63% bounce from Wednesday’s low of 97.22, according to MarketWatch data.

Amid the strengthening dollar, both gold & the S&P 500 index have settled lower after touching record highs on Tuesday. 

“Gold’s reversal from fresh highs looks like profit-taking or hedging shifts,” Derek Lim, head of research at crypto market-making and trading firm Caladan, told Decrypt. “While some of those flows might rotate into Bitcoin, the effect gets muted if the dollar keeps strengthening.” 

With the core inflation near 3%, Lim expects August’s Core PCE release to set the tone on how equities, gold, and Bitcoin will react.

A positive surprise would “force the markets to reprice rate-cut expectations,” he said, making equities, gold, and Bitcoin vulnerable. At the same time, a softer print would strengthen the dovish case, pushing these assets higher.  

The Fed’s “measured dovishness is calming markets,” discounting the U.S. dollar’s bounce and recent drop in both equities and gold, Ryan McMillin, chief investment officer at crypto fund manager Merkle Tree, told Decrypt.

He said the market is in agreement with the Fed’s stance and points to the reduced volatility in the bond markets as proof, expecting this macro backdrop to help end Bitcoin’s September slump and push it to new highs heading into a historically bullish fourth quarter. 

Bitcoin is currently trading at $111,800, down less than a percent on the day, CoinGecko data shows.