Bitcoin Stuck in Macro Tug of War

Bitcoin faces challenges as the U.S. dollar strengthens following the Federal Reserve’s dovish approach, while gold has settled lower after achieving record highs on Wednesday.

The mixed signals have confined crypto trading within a tight range, lagging behind record-breaking movements in equity markets and gold.

The Fed’s quarter-point “insurance cut” from last week calmed front-end rates but led to a sell-off in long-term Treasuries, raising yields, as noted by Singapore-based trading desk QCP Capital in a Wednesday post.

Fed Chair Jerome Powell’s emphasis on a cautious path forward provided relief for the U.S. Dollar Index (DXY), which bounced back by 1.63% from Wednesday’s low of 97.22, according to MarketWatch data.

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

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

With core inflation near 3%, Lim anticipates that August’s Core PCE release will influence how equities, gold, and Bitcoin respond. A positive surprise could force markets to re-evaluate rate-cut expectations and make these assets vulnerable. Conversely, a softer print would bolster the dovish case, potentially pushing these assets higher.

Ryan McMillin, chief investment officer at crypto fund manager Merkle Tree, stated that the Fed’s “measured dovishness is calming markets,” diminishing the impact of the dollar’s bounce and the recent declines in equities and gold. He believes the market aligns with the Fed’s stance, as evidenced by reduced volatility in bond markets. This macro backdrop may help end Bitcoin’s September decline and drive it towards new highs in a historically bullish fourth quarter.

Currently, Bitcoin is trading at $111,800, down less than a percent on the day, as per CoinGecko data.