US Dollar Slides in Anticipation of Crucial Economic Data, While Bitcoin Surges

24 Oct, 2023

US Dollar Slides in Anticipation of Crucial Economic Data, While Bitcoin Surges

On Tuesday, the US dollar weakened against a range of currencies, reflecting a decline in Treasury yields as investors awaited crucial economic data in anticipation of the Federal Reserve's upcoming monetary policy meeting. The dollar index was hovering around 105.57, having dropped more than 0.5 percent in the previous session due to the fall in US Treasury yields.

The greenback received support last week when Federal Reserve Chair Jerome Powell suggested that the strength of the US economy might justify tighter financial conditions. This pushed the benchmark 10-year yield to over 5 percent, its highest level since July 2007. Bitcoin once again grabbed the market's attention as it surged, driven by speculation that the United States might soon approve a bitcoin exchange-traded fund.

Market focus has now shifted to the last pieces of US economic data preceding the Fed's meeting scheduled for October 31 to November 1. This includes the release of the flash Purchasing Managers' Index (PMI) later on Tuesday and the Gross Domestic Product report due on Thursday. The PMI data could shape market expectations leading up to the GDP report, according to Matt Simpson, Senior Market Analyst at City Index. He noted that "If the data leans far enough one way, it could trigger a substantial rally or breakdown in the dollar, with the Fed entering a blackout period before the policy meeting. The Fed is expected to maintain its rates at the upcoming meeting.

The European Central Bank is also expected to keep interest rates unchanged at its meeting on Thursday, following a 25 basis point increase in key interest rates in September. The euro remained relatively stable at $1.0665, retaining its gains against the dollar from Monday.

Simultaneously, the dollar's decline provided some relief to the struggling yen. The Japanese currency had touched the critical 150-level on both Friday and Monday, but it was trading flat against the dollar at 149.77. Traders consider the 150 threshold as a potential trigger for Japanese authorities to intervene in the currency market.

Nonetheless, the data releases from the United States this week could potentially push the yen back into the danger zone if they show significant strength. Kyle Rodda, Senior Financial Market Analyst at Capital.com, mentioned that "The yen will be particularly sensitive to strong US data, especially if it leads Treasury yields to break through what appears to be a key resistance level of around 5 percent." In the cryptocurrency market, Bitcoin experienced a remarkable 14 percent surge, reaching a 2.5-year high of $34,283.