Bitcoin price movements vs dollar strength and inflation

It’s been a great start to the year for Bitcoin (BTC), Ethereum (ETH) and other cryptocurrencies. The original crypto token gained 40% since the beginning of 2023, making it the second-best January on record for BTC. However, this recent surge has slowed down as investors take stock of macroeconomic indicators, especially the implications of the latest key interest rate decision, which was announced at the end of the Federal Open Market Committee (FOMC) meeting on 1 February. The European Central Bank is scheduled to do the same for the Euro on 2 February.

Federal Reserve Chair Jerome Powell has historically been hawkish on inflation, and the general expectation that dollar interest rates would be hiked by 25 basis points (which was the case) had already been priced in when it comes to current market prices. Some contrarians had hoped that Powell would acknowledge recent economic growth and instead decide to ease inflation, but the recent decline of the US dollar strongly suggests otherwise, and over 99% of investors anticipate further inflation hikes.

BTC/USD continues to trade sideways around the $23,000 mark as investors await inflation rate figures from the US and Europe. $23,500 remains the resistance target to beat for the bulls, but some investors may be ready to sell and take profit now if they expect a downturn. Aside from inflation, there are also two other economic indicators that can inform traders:

• Tech stocks: Cryptocurrency has historically been correlated with tech stocks, which appear to be in good health. Gains were made in the Nasdaq Composite (1.6%), the S&P 500 (1.4%) and the Dow Jones Industrial Average (1%) at the close of the month. 
• US Dollar strength: On the other hand, Bitcoin’s price has generally been inversely correlated with dollar strength. The ticker to watch here is the US Dollar Index (DXY), which has been trending downwards since September 2022 but has been flagged for a “massive positive divergence” by trading firm QCP Capital, which likened the trend to BTC/ETH back in December and warned that any positive breakout would likely be sudden and abrupt.

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