US Dollar Index Hits 18-Month High as Bitcoin and Stocks Slip

The US Dollar Index (DXY) reached an 18-month high near 102.56 on Monday, with Bitcoin trading around $83,000 and the Nasdaq slipping. A separate early reading had the index at roughly 102.2, close to the peak it set the previous week, as investors stayed cautious over an escalating Middle East conflict and waited on US inflation data.

US government bonds pay interest. Bitcoin does not. When those bonds yield above 5%, there is more reason to move money into safer assets than into a coin that pays nothing.

Fed Odds Put an 87% Chance on a December Hike

The Fed raised rates to a range of 3.75% to 4.00% on Sept. 16, its first hike since July 2023. CME FedWatch data at press time put the odds of a hold this month at 82.8%, against 51% a month earlier. Futures pricing shows roughly an 87% chance of another hike by December.

The bond market has repriced already. The 10-year Treasury yield touched 5.35% on Oct. 8, its highest in 24 years, and $166 billion moved into money-market funds that week.

Wednesday's CPI print is the next catalyst. Economists expect annual inflation of 3.7%, up from 3.4%, with core prices up 0.2% on the month. The S&P 500 and Nasdaq both slipped on Monday, with higher oil prices adding pressure.

Cleveland Fed President Beth Hammack said restrictive policy was needed to cool an increasingly broad inflation problem. On the risk of expectations hardening:

With each passing month, persistently elevated inflation raises the risks of an inflationary mindset becoming entrenched in the economy.

The Fed's rate decision lands Oct. 28, after producer prices and retail sales on Thursday. Consumer sentiment has already fallen to a five-month low of 46.3 in the preliminary October University of Michigan reading, from 48.1 in September, as conflict-driven living costs weighed on households.

Short Positions Build as Spot Demand Stays Thin

Bitcoin was changing hands near $82,490 in one reading, down 1.62% over 24 hours, with a market valuation near $1.65 trillion. The weekly loss is quoted at nearly 3% in one snapshot and 4.61% in another, a spread worth treating as unsettled.

CoinGlass derivatives data puts 24-hour Bitcoin futures volume at $43.55 billion, with open interest at $52.25 billion. Liquidations over the same window totalled $54.76 million, split into $43.22 million long and $11.54 million short, so about 79% of the forced exits were bullish positions.

The aggressive opening of short positions indicates low spot demand. The spot market has not yet seen enough buying pressure to reverse those shorts, and that reversal is what would invalidate the defensive positioning.

The Trendline Van Lagen and Barclays Are Watching

Macro strategist Gert van Lagen expects the dollar's advance to stall at a trendline the index broke last year. Barclays analysts see scope for the rally to stall with some near-term retreat, citing bond market volatility and a possible soft CPI. Goldman Sachs upgraded global equities on Monday but named higher interest rates as a key near-term risk.

The other view comes from analyst Alejandro, who expects the dollar to strengthen further and says a stronger dollar tightens financial conditions and pressures crypto and altcoins.

The dollar and Bitcoin do not move inversely on schedule. In September, Bitcoin gained 6.14% while the DXY rose nearly 2%, climbing from roughly 98.8 to above 102 and past July highs near 101.6. October has run the other way: total crypto market value has fallen 1.4% this month, a move tied to higher yields, an oil spike and fund selling.

A dollar that stalls at the trendline leaves room for Bitcoin to stabilise. A CPI print softer than the 3.7% forecast would put the December hike trade back in question. The index holding above 102, with an 87% hike probability priced for December, keeps the pressure on risk assets for now.