Popular Science | What is the US dollar index? Are inflation, Fed rate hikes, and 20-year highs bad for cryptocurrencies? | Moving Zone – The Most Influential Blockchain Media (Bitcoin, Cryptocurrency)

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Popular Science | What is the US dollar index? Are inflation, Fed rate hikes, and 20-year highs bad for cryptocurrencies?  | Moving Zone – The Most Influential Blockchain Media (Bitcoin, Cryptocurrency)
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The downturn in the crypto market and the bearish economic outlook have led to an increase in the safe-haven demand of many investors, and the US dollar index has risen to a new high in the past 20 years. This article will introduce how the US dollar index is formed and how should investors interpret the meaning of its rise and fall? (Recap:Bitcoin stands back at 19,000, and Ethereum rebounds 10% to break 1,600; it is estimated that the Fed will raise interest rates by 3 yards this month) (background supplement:Bloomberg: There may be only 2 years left until the next Bitcoin explosion!Driven by the positive BTC halving)

CompleteThe global venture capital market continues to be sluggish. Although the US Federal Reserve (Fed) has raised interest rates several times, the high inflation has not yet seen a clear sign of easing. Coupled with the war between Russia and Ukraine and the supply chain impact caused by the epidemic, the global economy is still in the Amidst the gloom and gloom, investors’ demand for safe-haven continued to rise. So in the near term you may see news that the US dollar index has risen to a new high in nearly 20 years. This article will introduce what the “dollar index” is and how to make it up? How should investors interpret the meaning of its rise and fall?

01|What is the US dollar index?

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02|The function of the US dollar index?

03|What impact will the rise and fall of the US dollar index have on the crypto market?

04|What are the factors that affect the US dollar index?

01|What is the US dollar index?

Simply put, the US Dollar Index (DXY) is a comprehensive indicator that observes changes in the exchange rate of the US dollar against world currencies, and can be used to measure the strength of the US dollar relative to international mainstream currencies. The index is composed of 6 national currencies in ratios, namely Euro (EUR), Japanese Yen (JPY), British Pound (GBP), Canadian Dollar (CAD), Swedish Krona (SEK), Swiss Franc (CHF).

Among them, the euro accounts for the highest proportion of 57.6%. There are two reasons: one is that the euro has a high status in the global currency market, second only to the dollar; the other reason is that there are more countries using the euro, up to 19, and therefore the dollar index It is also more accurate to reflect changes in the value of the euro.

Source: Elliott wave street

02|The function of the US dollar index?

The U.S. dollar index can reflect the strength of the U.S. dollar itself. In addition, the U.S. dollar is currently the most liquid currency in the world, and most cross-border commodity trades are settled through it. Therefore, the trend of the U.S. dollar also affects the prices of internationally traded commodities.

In addition, it should be noted that the value of the US dollar index does not represent the price of the US dollar, but is compared with the value of the six currencies according to the base value of 100. It is convenient for us to identify the exchange rate relationship between these currencies. For example:

When the US dollar index rises: the index rises from 100 to 110, which means that the US dollar has appreciated by 10% against the 6 currencies as a whole; funds flow out of other countries and into the United States. When the US dollar index falls: the index falls from 100 to 90, which means that the US dollar has depreciated by 10% relative to the 6 currencies as a whole; funds flow out of the United States and to other countries.

03|What impact will the rise and fall of the US dollar index have on the crypto market?

As for why investors should pay attention to the US dollar index? This is because the performance of the index usually exhibits a “negative correlation” with risky assets. When the US dollar index is strong, it means that investors have a strong hedging demand and tend to withdraw funds from emerging markets such as cryptocurrencies.

In the figure below, we compare the trend of the US dollar index and Bitcoin in 2022. We will find that the US dollar index has risen by 24% this year, approaching 110, reaching a new high in the past 20 years; in contrast, Bitcoin has fallen by more than 60%. %.

However, the moving area also reminds readers that although the US dollar index has shown a negative correlation with Bitcoin recently, this does not mean that there is an absolute correlation between the two, but that it has a certain degree of reference for the current financial environment. .

04|What are the factors that affect the US dollar index?

The U.S. dollar is the main reserve currency for international trade and finance. In addition to the supply and demand effects of 6 foreign currencies, risk factors such as market psychology and geopolitics will also affect the value of the U.S. dollar in the global market:

U.S. Federal Funds Rate: A rate hike by the U.S. Federal Reserve will make the U.S. dollar more attractive to investors, leading to a stronger index. But note that interest rates are relative, if other regions raise interest rates more than the dollar, then the dollar will be relatively unattractive. Safe-haven demand: The U.S. dollar is traditionally regarded as a safe haven. When the global economy is in turmoil or crisis, the U.S. dollar index has repeatedly pulled up. Demand for raw materials: Fluctuations in the demand for raw materials may also cause changes in the US dollar index. For example, when people think that the demand for raw materials will slow down in the future, it is possible to sell the raw materials in exchange for US dollars. Other factors: inflation or austerity, monetary policy or geopolitical conflict…etc. 📍Related reports📍

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