Since this week’s inception, the value of the US dollar rose significantly. DXY hits $114.5, reaching an all-time high. As a result, the global crypto market cap dropped 3.60%, to $924.65 billion, sending major cryptocurrencies trading in the negative. Over the past 24 hours, the total value of all crypto traded has risen by 15.70%, to $92.50 billion. DeFi accounted for $5.03 billion in volume or 5.44% of the global cryptocurrency market. Stablecoin trading volume was $86.04 billion, or 93.03% of the total 24-hour volume in the cryptocurrency market.

Investors appear to be shifting their investments from risky assets to safe-haven ones. The US dollar is at its best level in almost two decades compared to its major counterparts. This means that purchasing dollars will cost you more, but you can get more foreign currency for each dollar you spend.

The majority of the cryptocurrency market’s downtrend is due to a hawkish FOMC and a stronger US dollar.

Where Does the Dollar Stand?

Measured against a basket of six other major currencies (including the euro, pound, and yen), the US dollar has gained 15% in 2022, according to the Dollar Index (DXY). The dollar has not been this strong in almost 20 years.


US Dollar Index Weekly Price Chart – Source: Tradingview

DXY Hits $114.5 – Why is the US Currency So Strong?

The Federal Reserve of the United States has raised interest rates multiple times this year to slow inflation. At its September meeting, the Federal Reserve Board (Fed) raised the federal funds rate by 75 basis points (bps) to a range of 3%-3.25%, the third consecutive increase of this magnitude. This brought borrowing costs to their highest level since 2008.

Chair Powell reaffirmed this view at the press conference, and policymakers generally agree that further hikes to the target range are warranted.

We must end the current period of inflation. I really hope that there’s an easy way to do it. No, there isn’t.

The so-called dot plot indicated that interest rates would climb to 4.4% by December, higher than the 3.4% predicted in June, and continue to rise to 4.6% in the following year. As a result, the returns on dollar-denominated financial assets like US government bonds have increased. When issuing bonds, governments (and corporations) guarantee repayment of loaned funds plus interest at a later date.

Fed Rate Hike Sentiment

Source: Federal Reserve

Bonds issued by the government are typically thought to be quite secure. International investors have recently been purchasing US Treasuries at a record rate of billions of dollars per week. It will cost them dollars to buy these bonds, and the increased demand for dollars has caused the currency to rise in price. The value of other currencies decreases when investors sell them to purchase dollars. The dollar’s size and stability make it attractive to investors during economic uncertainty around the world. That adds to the cost as well.

Geopolitical Tensions – Russia vs. Ukraine: Because of the situation in Ukraine, gas prices have risen dramatically, causing economic hardship in many countries across Europe and Asia. As a result of this diversification, the United States has not been as severely affected by the rising energy cost. Even though the economy has contracted during the past six months, companies are still hiring new employees.

As a result, instead of risking funds with cryptos or stocks, investors prefer to invest in risk-free securities such as bonds and t-bills.

Cryptocurrencies Come Under Pressure as DXY Hits $114.5

Considering the bullish fundamentals, the US dollar index is placing all-time highs. Analyst and researcher on the cryptocurrency market Lark Davis tweeted that the US Dollar Index (DXY) had crossed 114.5 points.

The RSI, on the other hand, is now above 80 and has entered the overbought zone. The weekly candle close of the dollar index will help us determine whether there will be another upswing or if we can expect a bearish correction. If the dollar experiences a bearish correction, investors may be able to profit from an upward move in the cryptocurrency market.


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