Dollar’s Rebound Pressures Bitcoin, But Analysts Warn Against Calling a Comeback

The U.S. dollar is showing signs of life after a prolonged slump — but analysts caution that the recent strength may not last, and implications for bitcoin remain complex.

The U.S. Dollar Index (DXY) has climbed 1.4% to 98.30, rebounding from a three-year low of 96.37. The move marks a technical breakout, as the index has surpassed a downward trendline drawn from February’s highs. Still, most analysts see the bounce as a short-term correction, not the start of a sustained bullish trend.

Historically, a stronger dollar dampens appetite for risk assets like bitcoin, as global financial conditions tighten and investors shift to safer havens. Bitcoin has generally moved inversely to the dollar, making the DXY’s latest gains an important signal for crypto traders.

“This is the first back-to-back weekly gain for the dollar since mid-May,” said Marc Chandler, Chief Market Strategist at Bannockburn Global Forex. “The bounce is being driven by stronger-than-expected U.S. economic data and rising interest rate expectations.”

Fed funds futures have priced in a 25 basis point increase in the implied year-end rate since the start of July, boosting the dollar. However, Chandler views this as a technical reaction to recent data rather than a shift in long-term fundamentals.

ING: Near-Term Support, But No Lasting Rally

Analysts at ING echoed Chandler’s view, noting that while the dollar may find short-term support, especially as markets reprice expectations for a September Fed rate cut, a broader rally remains unlikely.

“Retail sales and jobless claims surprised to the upside, prompting markets to reduce the 14 basis points of easing previously priced in,” ING analysts wrote. “That could add pressure on EUR/USD. Meanwhile, Japan’s upcoming election may fuel further strength in USD/JPY.”

Japanese Politics in Focus

Attention is also turning to Japan’s Upper House elections, scheduled for Sunday. Political uncertainty is driving capital outflows from Japanese assets, contributing to dollar strength.

ING warned that if Japan’s ruling coalition fails to secure a majority, it could disrupt negotiations with the U.S. on trade and fiscal matters. Promises of tax cuts and cash handouts ahead of the vote are also raising concerns about Japan’s fiscal discipline.

“The coalition needs at least 50 of the 125 contested seats. Current polling suggests they may fall short,” ING said. “On top of that, speculation about a potential rate hike from the Bank of Japan is keeping investors on edge.”

DXY’s Rebound May Be Fleeting

Despite the short-term drivers of the dollar’s recovery, some remain skeptical of its durability. Griffin Ardern, Head of Options Trading and Research at BloFin, said investors’ aversion to the yen — and corresponding dollar strength — may be short-lived.

“U.S. macro fundamentals haven’t materially improved,” Ardern noted. “Inflation remains sticky, and Trump’s renewed pressure on Powell, combined with the passing of the OBBA bill, has pushed inflation expectations higher.”

The One Big Beautiful Bill (OBBA) — recently passed by Congress — is expected to widen the U.S. fiscal deficit by $3 trillion over the coming years, further clouding the long-term outlook for the greenback.

“Once Japan’s political uncertainty eases, we could see the DXY resume its downward trend,” Ardern added.