Bitcoin (BTC) Prices Drop Over 5% to Below $67K as Upbeat US Factors Data Pushes Dollar Index Higher

Bitcoin (BTC) faced selling pressure during Asian trading on Tuesday, as upbeat US factory data lifted the dollar index (DXY) to its highest level since mid-November.

The leading cryptocurrency by market cap fell 4% to $66,342 in a bearish resolution of the recent week-long consolidation between $68,000 and $72,000, data from CoinDesk shows. The broader Crypto market suffered losses, with Ether (ETH), Solana’s SOL and Dogecoin (DOGE) recording more significant losses. Meanwhile, the broader CoinDesk 20 index fell nearly 8%.

The dollar index, which tracks the value of the dollar against major fiat currencies, surpassed the 105 mark for the first time in four months, taking the four-week gain to 2.58%. A stronger dollar makes dollar-denominated assets like Bitcoin and gold expensive, which could lead to lower demand. Furthermore, the sustained strength of the dollar is known to cause financial tightening around the world, undermining investors’ willingness to take risks.

The Institute for Supply Management’s (ISM) manufacturing purchasing managers’ index (PMI), released on Monday, showed that factory activity unexpectedly expanded in March, the first growth since September 2022.

The PMI rose 2.5 points to 50.3 last month, following a reading of 47.8 in February. The headline number crossed into expansion territory above 50, snapping 16 consecutive months of contraction and weakening the case for Fed rate cuts. The new orders index also returned to expansion territory and the price index jumped to 55 .8%, an increase of 3.3 percentage points compared to the 52.5% reading in February.

According to Bloomberg, the amount of Fed rate cuts included in swap contracts for this year fell to less than 65 basis points following the industrial sector report. In other words, the market now expects the Fed to backtrack on its forecast of three 25 basis point rate cuts for 2024. The probability of the Fed making the first rate cut in June has dropped below 50%.

“However, markets are focused on the ISM report, with 10-year Treasury yields rising 10 basis points, supported by the return of manufacturing growth and higher sector inflation readings. There are about 20 individual speeches from the Federal Reserve this week, and the market is likely thinking that today’s outcome will make policymakers wary of committing to significant policy easing,” ING analysts said in a note to clients on Monday. .

Some analysts, however, believe that rising fiscal debt will eventually force the Fed to cut rates quickly, offering a major tailwind to Crypto Prices. The Fed raised rates from zero to 5.5% over 16 months through July 2023 to control inflation. The so-called squeeze was partially responsible for the 80% drop in the price of bitcoin in 2022.

Looking ahead, Bitcoin could remain volatile for some time as several employment reports are in the works this week, including Friday’s nonfarm payrolls numbers and the unemployment rate. Additionally, the quadrennial halving of the Bitcoin blockchain mining reward will be slated for the end of this month.