DXY Surges to 2-Month High as Fed Keeps Rates Frozen – Traders Brace for Impact

The dollar just flexed its muscles. The US Dollar Index (DXY) ripped to a two-month peak after Jerome Powell's Fed held rates steady—sending shockwaves through forex markets.

No pivot, no mercy. With inflation still sticky, the central bank doubled down on its 'higher for longer' stance. Cue the dollar's relentless rally.

Crypto correlation alert. Bitcoin and altcoins typically move inversely to DXY strength. This could spell trouble for digital asset bulls in the short term.

Wall Street's favorite stress ball. The dollar's resurgence comes as traditional markets wobble—proving once again that when panic hits, everyone still runs back to Uncle Sam's paper. How quaint.

DXY Hits 2-Month High: What Will Happen to Bitcoin?

Despite consistent pressure from President Donald Trump, the Fed decided to keep interest rates unchanged once again on July 30. This decision comes amid a low unemployment rate and solid labor market conditions. 

However, the Fed noted that inflation rates remained ‘somewhat elevated.’

“In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks…The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective,” the press release read.

Notably, the Fed’s decision not to cut rates proved favorable for the dollar. Market data showed that DXY reached 99.98, a level last seen in late May.

The index slid slightly to 99.74 at the time of writing. The latest milestone adds further momentum to DXY’s ongoing recovery rally.

“We’ve seen the classic correlation still holding, in the sense that we’ve seen a hawkish Fed push up front-end yields and the U.S. dollar, equities have struggled, and the credibility of the Fed has also been probably reinforced by the view that the Fed chair is still in command,” Rodrigo Catril, senior currency strategist at National Australia Bank, told Reuters.

Nonetheless, as the DXY rose, Bitcoin fell. BeInCrypto Markets data showed that BTC dropped to a low of around $115,760 yesterday. 

The dip isn’t surprising, especially considering that historically, BTC and DXY have moved in opposite directions. Still, the drop was short-lived. BTC reversed its losses and regained ground. 

At the time of writing, the largest cryptocurrency was trading at $118,631, up 0.43% over the past day.

While bitcoin managed to show resilience, a rising dollar could challenge its upward trajectory again. BeInCrypto previously reported that DXY was showing signs of a rebound. Now, analysts are again predicting that the dollar could continue its uptrend.

The US Dollar $DXY pic.twitter.com/FObqnu74Ws

Macro strategist, Michael J. Kramer, forecasted that DXY could reach 101, a 1.26%. rise from current levels.

“DXY breakout still picking up steam, next stop could be 101,” Kramer noted.

While the predictions are optimistic, it remains to be seen whether the greenback will actually continue rallying, making the index a focal point in global financial markets.