Bitcoin benefits from US dollar downturn, analysts say

The dollar has reacted negatively to an up-tick in U.S. jobless claims, benefiting bitcoin alongside equity markets, an analyst said.

According to TradingView data, the U.S. Dollar Index (DXY), which assesses the dollar's performance against a basket of major world currencies, registered a 0.45% decline from Thursday's high of 105.73 to 105.25.

In contrast, after the release of the U.S. unemployment figures, the S&P 500 traded within 1% of its record high. By the end of trade on Thursday, the Dow Jones was up by 0.85%, while the S&P 500 gained 0.51%, and the Nasdaq Composite rose by 0.27%. Also, the bitcoin price increased 2.5% in the past 24 hours and was trading at $62,927 at 9:06 a.m. ET, according to The Block’s Price Page.

"U.S. rates seem to have peaked on April 30, with minus 20bps for the U.S. two-year yield, to price lower growth, the DXY is down 1% and bitcoin is up 8% since then," Nansen.ai Principal Research Analyst Aurelie Barthere told The Block.

According to ING bank FX strategist Francesco, "the negative dollar reaction to a modest tick-up in U.S. jobless claims yesterday tells us that the generally overbought dollar remains quite vulnerable to even slightly softer U.S. data releases and now markets may be buying in more convincingly on the softening U.S. jobs market narrative," Pesole said in a note on Friday.

Risk assets benefit from weaker dollar

The lower DXY coincides with weaker employment data emerging from the U.S., which offers more evidence that the labor market in the U.S. is steadily cooling and could pressure the Federal Reserve to cut rates sooner.

The increased expectation of a Fed interest rate cut and a lower DXY could prompt investors to move capital out of safer assets like bonds and into riskier assets like equities and cryptocurrencies like bitcoin.

However, Barthere stressed that any dollar downturn could also negatively impact both credit markets and risk assets. "Investor's should remain attentive to potential signs of greater growth weakness, which would not be positive for risk assets including crypto, as equities and credit are rich in terms of historical valuations and risk premia."  

Slower U.S. jobs narrative gains traction

On Thursday, the weekly jobless claims report from the U.S. Labor Department showed new claims for unemployment benefits rose last week to the highest level in more than eight months.

The data comes after a weaker U.S. jobs report last Friday revealed that employers added only 175,000 jobs last month, falling short of economists' expectations for a 243,000 increase.

The GM 30 Index, representing a selection of the top 30 cryptocurrencies, has increased by 2.53% to 131.96 in the past 24 hours.