Bitcoin Drops Over 5% as Upbeat U.S. Factory Data Powers Dollar Index to Nearly 5-Month High

Unexpectedly, U.S. factory activity expanded in March, according to data released on Monday, which prompted a rise in the dollar index.

This surge led Bitcoin to drop below $66,500 during Asian trading hours, marking the first time since mid-November that the dollar index surpassed 105.00.

The latest data reveals an unexpected acceleration in U.S. manufacturing activity for March. Consequently, the likelihood of a Fed rate cut in June fell below 50% following this manufacturing data release.

during Asian trading hours on Tuesday, Bitcoin faced selling pressure as optimistic U.S. factory data propelled the dollar index to its highest level since mid-November. CoinDesk data indicated a 4% decline in Bitcoin’s value to $66,342, breaking the recent week-long consolidation range between $68,000 and $72,000. Other major cryptocurrencies such as ether (ETH), Solana’s SOL, and Dogecoin (DOGE) also experienced notable losses. Furthermore, the broader CoinDesk 20 index dropped by nearly 8%

The strengthening dollar, reflected in the dollar index climbing above 105, poses challenges for assets priced in dollars, including bitcoin and gold. This increase in the dollar’s value can potentially dampen demand for such assets, while also tightening financial conditions globally, thereby reducing investors’ risk appetite.

The Institute for Supply Management’s (ISM) manufacturing purchasing manager’s index (PMI) for March showed unexpected growth in factory activity, marking the first expansion since September 2022. The PMI increased by 2.5 points to 50.3, crossing the expansion threshold of 50 and halting 16 consecutive months of contraction. This improvement weakens the case for Fed rate cuts, with the probability of a rate cut in June dropping below 50%.

Analysts suggest that the ISM report, along with higher inflation readings and rising Treasury yields, may influence Federal Reserve officials’ policy decisions. Additionally, some analysts anticipate that the Fed’s obligation to address ballooning fiscal debt could lead to rapid rate cuts, potentially bolstering cryptocurrency prices. However, Bitcoin’s volatility may persist due to upcoming job reports and the impending mining reward halving on the Bitcoin blockchain later this month.