BTC Price’s negative correlation with the dollar index strengthens ahead of US GDP data

Bitcoin (BTC) has historically moved in the opposite direction to the dollar index (DXY), which measures the dollar’s exchange rate against major fiat currencies, including the euro.

The negative correlation has strengthened, reversing the brief rally witnessed in late March, indicating the possibility of accelerated gains in the cryptocurrency in the event of a continued dollar slide following the release of US GDP data on Thursday.

The 90-day correlation coefficient between bitcoin and the dollar index has fallen to a two-month low of -0.70, according to data from charting platform TradingView. It had weakened to -0.11 four weeks ago.

Correlations are measured on a scale from -1 to +1. Values ​​skewed towards -1 indicate that lower prices for one variable are associated with higher prices for the other.

Bitcoin and DXY have largely been negatively correlated over the past three years, except at times when crypto-specific factors overshadowed dollar trends. For example, bitcoin fell at the end of 2022 when the collapse of the crypto exchange FTX prevented investors from cheering on the weakness of the US currency. A similar collapse was seen ahead of Coinbase’s Nasdaq debut in April 2021 and the launch of a futures-based exchange-traded fund in the US the following October.

At 12:30 UTC, the US Bureau of Economic Analysis will release its preliminary estimate for first quarter gross domestic product (GDP). The data is likely to show the world’s largest economy grew at an annual rate of 2.0%, a slower pace than the 2.6% in the fourth quarter of 2022, according to Reuters estimates published by FXStreet.

Several economic indicators and bond market surveys have been warning of an economic recession for months. The dollar index has fallen more than 12% since early October on hopes that the Federal Reserve will halt interest rate hikes and resort to easing liquidity to support the economy.

Also, traders are back to pricing three year-end rate cuts in the wake of problems at First Republic Bank, although the Fed did not cut rates and maintained a hawkish or anti-stimulus bias after the much-severe banking crisis episode in March.

With so many dovish expectations already in the air, the GDP number may have to indicate a sharper-than-expected moderation in economic activity to trigger a deeper dollar selloff and boost risk assets, including cryptocurrencies.

It also means that an optimistic figure could see the markets price out interest rate cuts and lift the dollar higher.

“Market is looking at 2% growth – shouldn’t move markets too intensely given trailing nature of data point – must be a big beat/miss to expectations for rates of movement and USD, gold, Nasdaq,” Chris Weston, head of research at Pepperstone, so in a tweet.

At press time, bitcoin changed hands at $29,010, representing a gain of 2% on the day. The dollar index was little changed at 101.50.