The Dollar’s Path (DXY Index) Is Tracking Donald Trump’s First Presidential Term: Van Straten
Since US President-elect Donald Trump’s convincing election win two months ago, the dollar has strengthened more than 3% against its peers, matching its trajectory after his previous win in 2016.
The DXY Index, which measures the currency’s value against a basket of major US trading partners, last traded up in December before stalling over the next 12 months, along with bitcoin’s (BTC) 2017 bull run.
It is possible that the story will be different this time. The index has shown no signs of falling, and Trump’s economic policies and the actions of the Federal Reserve will likely bolster the greenback’s rally.
However, while a strong dollar is considered negative for risk assets, the incoming president has expressed his support for bitcoin and the largest cryptocurrency has risen since his election. That rally, which has seen it reach multiple record highs, may not continue at the same pace, according to Andre Dragosch, Bitwise’s head of research in Europe. BTC is currently priced about 10% below the record of around $108,300 it hit in mid-December.
“The Fed is stuck between a rock and a hard place at the moment,” said Dragosch in an interview with X. “Either the risk of a US recession by doing too little, too late or risk of a significant acceleration in inflation again.”
Trump has vowed to impose tariffs on key trading partners, potentially exacerbating global geopolitical uncertainty, fueling further demand for the dollar, which is seen as a safe haven in times of turmoil.
We also see strong economic performance from the US compared to other markets, with more than 3% growth in gross domestic product (GDP) and higher than targeted inflation, which keeps the increase of federal funds rates and only two interest rate cut forecasts for 2025.
The Fed has “communicated to the markets that they will only make two cuts in 2025 – less than previously expected,” Dragosch said. “That’s why the dollar appreciates, and yields keep going up. I think that’s also weighing on BTC. Macro is a headwind right now.”
