What’s Behind the Strength of the US Dollar?
The four-day rise of the Dollar Index is no accident; it is driven by a triple force of monetary policy, economic data, and risk aversion. Despite the Federal Reserve cutting interest rates in October, Chairman Jerome Powell clearly stated that “a rate cut in December is far from decided.” This statement has completely reversed market optimism about the easing cycle. Federal funds futures show the probability of a December rate cut has dropped from 90% at the start of the month to 67.3%, in sharp contrast to the dovish tendencies of other major central banks. As a result, non-US currencies are under pressure, with the EUR/USD falling to 1.1520, a new low since August, the British Pound reaching a seven-month low, and the Japanese Yen hovering near the 154 level. While the US ISM Manufacturing PMI shrank for the eighth consecutive month, manufacturing data in the Eurozone and Germany was similarly weak, which highlighted the relative strength of the US Dollar. Geopolitical risks, such as the US's military threats to Venezuela and Nigeria, combined with OPEC+ suspending production increases, leading to oil price volatility, have driven capital into US dollar assets.
Cryptocurrency Tumbles Due to Multiple Factors
In the past 24 hours as of the writing, liquidations in the cryptocurrency market amounted to $1.279 billion, affecting over 336,000 investors. More than 90% of the liquidations were from long positions, showing that the excessive optimism in leveraged positions was overwhelmed. Bitcoin briefly fell below $106,000, and Ethereum lost the key $3,600 support level.
Bitcoin faced issues on the demand side. Charles Edwards, founder of Capriole Investments, pointed out that institutional demand for Bitcoin fell below the rate of new coin mining for the first time in seven months. Ethereum ETF inflows plummeted from $5.2 billion in July to just $600 million in October, significantly weakening market support. Additionally, regulatory uncertainty has placed pressure on cryptocurrencies. Fed Governor Cook emphasized that “future policies depend on data,” while the US government shutdown has delayed the release of key economic data, further amplifying policy uncertainty.
Moreover, a Black Swan event was also an off-market factor in the crash. The well-established decentralized finance protocol, Balancer, was hacked, with estimated losses exceeding $100 million, which sparked fears about the security of the DeFi ecosystem. Ethereum perpetual contract funding rates turned negative, creating strong short-seller sentiment in the derivatives market. Option positions showed that a large number of put positions were concentrated below the $3,500 mark, creating downward pressure.
The "Seesaw" Between the US Dollar and Cryptocurrencies
Behind the “seesaw” between the US Dollar and cryptocurrencies is the global capital's difficult choice between monetary policy uncertainty and technological revolution. When liquidity wanes, high-leverage assets are the first to be hit. However, the assets that truly weather the cycle are always those with both technological barriers and cash flow.
