Bitcoin Dives as Dollar Surges, Manufacturing Data Fuels Fed Rate Hike Odds

Bitcoin's price took a significant hit as the dollar index soared over 105.00, reaching its highest level since mid-November. The decline was exacerbated by strong U.S. factory data that boosted the dollar's value and reduced expectations for a Federal Reserve rate cut in June. The broader crypto market also experienced losses, with ether, Solana's SOL, and Dogecoin suffering notable drops.

Bitcoin Plunges as Dollar Soars, Manufacturing Data Boosts Fed Rate Hike Expectations

Tokyo, Japan - Bitcoin faced a wave of selling pressure during Tuesday's Asian trading session, plummeting below the $66,500 mark as the U.S. dollar index rose to its highest level since mid-November, casting a shadow over the cryptocurrency market.

The downturn in Bitcoin's value came on the heels of upbeat U.S. manufacturing data, which lifted the dollar index (DXY) above 105.00 for the first time in four months. A stronger dollar tends to make dollar-denominated assets like Bitcoin less appealing, potentially reducing demand. Moreover, a sustained surge in the dollar can lead to global financial tightening, dampening investors' risk appetite.

Adding to the bearish sentiment, data released on Monday showed that U.S. manufacturing activity unexpectedly picked up pace in March, with the Institute for Supply Management's (ISM) manufacturing purchasing manager's index (PMI) rising to 50.3, indicating expansion in the sector for the first time since September 2022. The resumption of manufacturing growth and higher inflation readings from the sector bolstered the case for continued Federal Reserve (Fed) rate hikes, dimming the prospects of a policy pivot anytime soon.

"Markets are laser-focused on the ISM report, with 10-year Treasury yields climbing on the back of the return of manufacturing growth and elevated inflation readings from the sector," said analysts at ING in a note to clients. "With 20 or so individual Federal Reserve speeches on the agenda this week, the market is likely considering that today's outcome will make officials hesitate before committing to significant policy easing."

The Federal Reserve has raised interest rates from near zero to 5.5% over the past 16 months in a bid to curb inflation. The aggressive tightening stance has contributed to a significant decline in Bitcoin's price in 2022.

While the strong dollar and hawkish Fed policy outlook weighed on Bitcoin, some analysts believe that the ballooning fiscal debt will ultimately force the central bank to pivot to rate cuts, providing a major tailwind for crypto prices. However, the near-term outlook for Bitcoin remains uncertain, with several key economic data releases and the quadrennial mining reward halving event on the horizon.

Key Economic Data and Events to Watch:

• Friday's U.S. nonfarm payrolls report
• The release of the U.S. unemployment rate
• Bitcoin blockchain's quadrennial mining reward halving later this month