Bitcoin’s Value Decreases by More Than 5% as Positive U.S. Factory Data Boosts Dollar Index to Nearly five-Month Peak

Bitcoin’s Value Decreases by More Than 5% as Positive U.S. Factory Data Boosts Dollar Index to Nearly five-Month Peak

  • Bitcoin fell below $66,500 during Asian hours as the dollar index rose above 105.00 for the first time since mid-November.

  • Data released Monday showed U.S. manufacturing activity accelerated unexpectedly in March.

  • The probability of a Fed rate cut in June fell below 50% after the release of manufacturing data.

Bitcoin {{BTC}} faced selling pressure during Asian trading hours on Tuesday, as upbeat US factory data lifted the Dollar Index (DXY) to its highest level since mid- november.

The leading cryptocurrency by market value fell 4% to $66,342 in a bearish resolution of the recent week-long consolidation between $68,000 and $72,000. Viewing CoinDesk data. The broader crypto market suffered losses, with Ether {{ETH}}, Solana SOL, and Dogecoin {{DOGE}} seeing larger losses. Meanwhile, the CoinDesk 20 Index Broader fell by almost 8%.

The dollar index, which tracks the greenback’s value against major fiat currencies, rose above the 105 mark for the first time in four months, taking the four-week gain to 2.58%. A stronger dollar makes dollar-denominated assets like bitcoin and gold expensive, which could lead to lower demand. In addition, we know that the sustained strength of the dollar cause a financial crunch around the world, dampening investors’ willingness to take risks.

Institute for Supply Management (ISM) Manufacturing Purchasing Managers’ Index (PMI) released Monday showed that factory activity increased unexpectedly in March, the first growth since September 2022.

The PMI rose 2.5 points to 50.3 last month, from 47.8 in February. The headline figure moved into expansion territory above 50, ending 16 straight months of contraction and weakening the case for a Fed rate cut. The new orders index also returned to expansion territory and the price index jumped to 55.8%, up 3.3 percentage points from February’s figure of 52.5%.

According to Bloomberg, the amount of Fed rate cuts embedded in swap contracts for this year declined to less than 65 basis points following the manufacturing report. In other words, the market now expects the Fed to reverse its forecast of three 25 basis point rate cuts for 2024. The likelihood of the Fed making the first rate cut in June has fallen below 50%.

“Markets are, however, focused on the ISM report, with 10-year Treasury yields up 10 basis points on the return of manufacturing growth and higher inflation figures in the sector. There are about 20 individual speeches from the Federal Reserve this week, and the market likely believes that today’s outcome will cause officials to be hesitant to commit to significant policy easing,” the analysts said. from ING in a note to clients on Monday.

However, some analysts believe that skyrocketing budget debt will eventually force the Fed to quickly cut rates, providing a major bullish tailwind to crypto prices. The Fed raised rates from zero to 5.5% in 16 months through July 2023 to control inflation. This so-called squeeze is partly responsible for the 80% drop in the price of Bitcoin in 2022.

Looking ahead, bitcoin may remain volatile for a while as several employment reports are online this week, including Friday’s nonfarm payrolls figure and the unemployment rate. In addition, the quadrennial mining of the Bitcoin blockchain reward halved is expected later this month.

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