Dollar Strengthens Over 3% Post-Trump Election Victory
Since U.S. President-elect Donald Trump's election victory, the dollar has strengthened more than 3% against its peers, similar to the trajectory following his 2016 win. The DXY Index, which measures the dollar's value against a basket of major trading partners, peaked in December 2016 before declining for the next year, coinciding with bitcoin's (BTC) 2017 bull run.
This time, the index shows no signs of decline, supported by Trump's economic policies and Federal Reserve actions likely fueling the dollar's rally.
While a strong dollar is typically negative for risk assets, Trump has expressed support for bitcoin, which increased significantly since his election. BTC is currently about 10% below its record high of around $108,300 from mid-December, though future price growth may not continue at the same rate, according to Andre Dragosch, Bitwise's head of research in Europe.
Dragosch noted that the Fed faces challenges: risking a U.S. recession by acting too slowly or accelerating inflation again. Trump's potential tariffs on major trading partners could increase global geopolitical uncertainty, further boosting demand for the dollar as a safe haven.
The U.S. economy is performing strongly compared to other markets, with over 3% GDP growth and higher-than-targeted inflation, leading to elevated federal funds rates and only two interest-rate cuts forecast for 2025. Dragosch stated that the Fed's communication of limited cuts has contributed to the dollar's appreciation and rising yields, creating headwinds for BTC.