Representations of cryptocurrency Bitcoin and U.S. dollar are seen in this illustration, August 10, 2022. REUTERS/Dado Ruvic/Illustration

The Dollar Softens as Bitcoin Soars on ETF Speculation

TOKYO, Oct 24 (Reuters) – The dollar weakened against a range of currencies on Tuesday, following a decline in Treasury yields while investors awaited crucial U.S. economic data ahead of the Federal Reserve’s upcoming monetary policy meeting.

Bitcoin has once again grabbed the market’s attention as speculation grows surrounding the potential approval of a bitcoin exchange-traded fund in the United States.

The dollar index currently stands at around 105.47, having dropped over 0.5% in the previous session, reaching its lowest point in approximately a month due to a plunge in U.S. Treasury yields.

Last week, the greenback found support after remarks from Fed Chair Jerome Powell suggested that the strength of the U.S. economy may warrant stricter financial conditions, leading the benchmark 10-year yield to surge above 5% for the first time since July 2007.

The significant swing in yields has left markets on edge due to global uncertainty and escalating geopolitical risks, particularly following Hamas’ attack on southern Israel on October 7.

Market focus now shifts towards the remaining U.S. economic data before the Fed’s meeting on October 31 – November 1. The flash purchasing managers’ index (PMI) will be released on Tuesday, followed by the release of gross domestic product and another inflation report later this week.

According to Matt Simpson, senior market analyst at City Index, the PMI data could shape market expectations ahead of the GDP report. He stated, “If the data leans strongly in one direction, it has the potential to trigger either a substantial dollar rally or a breakdown, especially with the Fed currently in a blackout period.” The blackout period refers to the period leading up to the policy meeting where central bank officials are restricted from making public communications.

The Federal Reserve is expected to maintain interest rates at its upcoming meeting.

On Thursday, the European Central Bank is also projected to keep interest rates unchanged after raising its key rates by 25 basis points in September.

The euro has continued to gain momentum, reaching a one-month high against the dollar on Monday, hovering around $1.0682.

Conversely, the weakened dollar provided some relief to the struggling yen, with the Japanese currency fluctuating near 149.65 after breaching the sensitive 150-level both on Friday and Monday.

Traders view the 150 threshold as a potential intervention point for Japanese authorities in the currency market.

However, if the U.S. data this week proves to be strong, it could push the yen back into dangerous territory.

“The yen will be particularly sensitive to robust U.S. data, especially if it leads to a significant surge in Treasury yields beyond the crucial resistance level of around 5%,” explained Kyle Rodda, senior financial market analyst at Capital.com.

Attention will also be placed on the Bank of Japan’s policy decision on October 31. Rising global interest rates have prompted discussions about potential adjustments to the bank’s bond yield control policy.

A survey released on Tuesday revealed that Japan’s factory activity contracted for the fifth consecutive month in October, while the service sector experienced its slowest growth this year.

In the cryptocurrency market, bitcoin continued its ascent during Asian trading hours, reaching $35,198, its highest level since May 2022, driven by speculation surrounding the imminent launch of a bitcoin exchange-traded fund.

Reporting by Brigid Riley. Editing by Sam Holmes & Shri Navaratnam

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