The dollar returns strongly ahead of a decisive CPI

The US dollar is back to levels it hasn't seen in 18 months. The DXY is hovering around 102.2 after starting at about 98.8 in early September. For crypto, the timing is unfortunate: the US will release its September CPI on October 14, just two weeks before the next Fed decision. Bitcoin had resisted the dollar's rise in September. It now needs to do so again.

In brief

• The DXY is around 102.2, near its highest level in 18 months.
• The US CPI for September will be released on October 14.
• Bitcoin gained 6.14% in September despite the dollar's rise.

The dollar reaches an 18-month high

The rise has been swift. The Dollar Index was around 98.8 at the beginning of September. It has now surpassed 102 and has crossed its July highs around 101.6. The movement had already begun to surprise by the end of September. Crypto was rising at the same time as the dollar, a rather unusual setup after several periods where the two assets moved in opposite directions.

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

The market now finds itself around a technical zone that has been monitored for several years. Analysts are not in agreement on what comes next. Some view the current rise as a mere return to an old trend line before a possible rejection. Others still see the dollar in a much longer bullish cycle. The CPI could help clarify some of these scenarios.

For Bitcoin and the crypto market, a sustainably strong dollar could increase selling pressure, while a pullback fueled by expectations of Fed rate cuts could favor a return of risk appetite.

The CPI arrives just before the next Fed decision

On Wednesday, October 14, investors will be looking towards the US. The Bureau of Labor Statistics will release the Consumer Price Index (CPI) for September, a key indicator for the upcoming decisions of the Federal Reserve. This will be followed by the Producer Price Index (PPI) and retail sales figures, ahead of the Fed meeting scheduled for October 28.

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

But these forecasts remain fragile. Higher-than-expected inflation could reignite fears of a new monetary tightening and support the dollar. For Bitcoin and the rest of the crypto market, this scenario could increase selling pressure, especially if US bond yields rise. Conversely, a lower CPI could ease rate tensions and give a boost to risk 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 risk 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 rose by nearly 2%. The inverse relationship observed repeatedly between the two markets thus temporarily weakened.

This resistance had already been visible after the rate hike in September: Bitcoin had moved relatively little despite the return of monetary tightening. October is less comfortable. The total market capitalization of crypto has declined by about 1.4% since the beginning of the month according to data reported by BeInCrypto. Bond yields, oil, and the dollar continue to weigh on risk appetite. The DXY thus reaches an important level at the same time as the CPI. If it retreats after inflation, Bitcoin would lose one of its macroeconomic headwinds. If it clearly surpasses its recent peak, September will have simply provided a first glimpse of Bitcoin's resilience. This time, the dollar is even higher.