In the recent trading session on Tuesday, Bitcoin experienced a downturn as positive manufacturing data from the United States boosted the dollar, reaching its peak level since mid-November. The premiere digital currency saw a decrease of 4%, dropping to $66,342, marking an end to its week-long stable phase that fluctuated between $68,000 and $72,000, according to figures from CoinDesk. This downturn was part of a broader trend in the cryptocurrency market, where other major digital currencies such as Ethereum, Solana’s SOL, and Dogecoin also faced notable declines. Specifically, the CoinDesk 20, which encapsulates a broader range of cryptocurrencies, recorded a nearly 8% fall.
The surge in the dollar’s value, as depicted by the dollar index (DXY) surpassing 105 — a first in over four months, with a cumulative four-week increase of 2.58%, significantly influenced the market. The appreciation of the dollar generally results in making assets priced in dollars, like Bitcoin and gold, more costly, which can suppress demand. Moreover, a persistently strong dollar can lead to tighter financial conditions globally, reducing the appetite for risk among investors. This sentiment was further reinforced by the unexpected expansion in manufacturing activity in March, as reported by the Institute for Supply Management’s (ISM) manufacturing purchasing managers’ index (PMI). The PMI climbed 2.5 points to 50.3, indicating the first expansion since September 2022 and breaking a 16-month streak of contraction. This shift not only suggests less likelihood of Federal Reserve rate reductions but also indicates a possible reticence from the Fed regarding aggressive monetary easing, given the market’s response to the manufacturing data and anticipated inflation pressures.
Furthermore, the Bloomberg report indicating a reduction in the market’s expectations for Federal Reserve rate cuts to less than 65 basis points for the year, following the manufacturing report, underscores the recalibration of monetary policy expectations. The anticipated timeline for Fed rate cuts, particularly the forecast for a June adjustment, now falls below a 50% probability.
Analysts, particularly those from ING, have highlighted the market’s keen focus on the ISM report. The return of growth in the manufacturing sector and associated inflation readings have led to a rise in 10-year Treasury yields by 10 basis points. With around 20 Federal Reserve officials scheduled to speak throughout the week, the prevailing sentiment is one of caution against promising substantial policy easing, given the current economic indicators.
