The U.S. Dollar Index rose to a 20-year high Monday, while the price of Bitcoin fell below the $20,000 threshold, a psychologically important support level for traders. The change in prices came after Federal Reserve Chairman Jerome Powell signaled that the U.S. central bank plans to keep raising interest rates to tame the highest inflation in 4 decades.
Dollar Rises and Bitcoin Slides After Powell’s Speech and Rumours of an Mt. Gox 137,000 BTC Dump
The U.S. Dollar Index, a measure of the greenback’s value against a basket of currencies, hit a 20-year high Monday. Meanwhile, the Bitcoin price dropped below the $20,000 mark again, pushing the majority of other cryptocurrencies into the red. The DXY last stood at 109.33, while Bitcoin hovered around $19,820.
The notable price movements in the Dollar Index and BTC come just a few days after the Fed’s annual conference in Jackson Hole, Wyoming. At the conference, Fed chair Jerome Powell reiterated the central bank’s commitment to bringing down inflation by continuing to raise interest rates in a way that could cause “some pain” to the U.S. economy.
“While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”
– Jerome Powell, Chairman of the Federal Reserve
Moreover, the drop in crypto prices was likely exacerbated by rumors that defunct bitcoin exchange Mt. Gox is set to dump 137,000 BTC in the open market. More specifically, the rumors implied that Mt. Gox’s funds were due for release to creditors on Sunday, spooking off the already agitated crypto investors.
An Unusual Correlation Between U.S. Dollar and Inflation
The capital markets have seen numerous twists and turns in 2022. But it is interesting that this is a rare occasion where both inflation and the U.S. dollar are on the rise, given that the pair were inversely correlated in the past.
The current U.S. inflation, which slightly eased in July, continues to hover around its 40-year-high, while the U.S. dollar just hit a 2-decade peak. Economists believe that the anomaly challenges the perception of the greenback as the world’s global reserve currency.
On Sunday, Sen. Elizabeth Warren said she feels very concerned that the Fed will tip the U.S. economy into a recession after Powell said on Friday he plans to keep hiking interest rates to bring down prices. Following Powell’s speech, the chances of a third consecutive 75 bps hike stood at 54.5%, according to the CME Group’s FedWatch measure.