US Dollar index soars to 2-month high as Fed holds rates—Crypto markets tumble

The US dollar index rocketed to a two-month high this week, shaking global markets and sending crypto assets into the red.

This surge in the US dollar index came on the heels of the Federal Reserve’s decision to keep interest rates steady, igniting fresh momentum for the greenback.

At its peak on Wednesday, the US dollar index (DXY) reached 99.98—its highest level since May.

The spike followed the Fed’s announcement to maintain its benchmark interest rates within the 4.25%–4.50% range, despite sustained political pressure and mixed inflation data.

Fed holds firm, dollar gains strength

In its July 30 policy statement, the Federal Reserve emphasized that while inflation remains “somewhat elevated,” the labor market is strong and unemployment is low, justifying a hold on rates.

“The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective,” the Fed stated.

The Fed signaled confidence in current economic conditions by holding rates steady, boosting investor appetite for the dollar, and accelerating the US dollar index rally. According to market analysts, the move also reinforced the Fed’s credibility.

“We’ve seen the classic correlation still holding, in the sense that we’ve seen a hawkish Fed push up front-end yields and the U.S. dollar,” said Rodrigo Catril, senior currency strategist at National Australia Bank, in a statement to Reuters. “Equities have struggled, and the credibility of the Fed has also been probably reinforced by the view that the Fed chair is still in command.”

The powerful rally in the US dollar index pushed it up to 99.98 before slipping slightly to 99.74 at press time.

This marks a robust continuation of the dollar’s recent comeback after months of volatility and speculation about potential rate cuts.

Financial experts are now eyeing a potential breakout above the 100 mark, especially if the Fed maintains its current stance and economic indicators continue to support dollar strength.

Crypto assets react: Bitcoin takes a hit

The surge in the US dollar index had an immediate ripple effect across digital asset markets.

Bitcoin (BTC), in particular, saw a sharp intraday drop to $115,760—mirroring the inverse correlation between BTC and DXY.

According to BeInCrypto, while the drop was sharp, it was also short-lived. Bitcoin managed to claw back some of its losses later in the day, but analysts warn that continued strength in the US dollar index could pose resistance to crypto recoveries in the near term.

“Bitcoin’s sensitivity to DXY is well-documented,” said Edward Moya, Senior Market Analyst at OANDA. “A strong dollar generally suppresses crypto prices as investors flee riskier assets.”

Market sentiment: Dollar rally isn’t over

With inflation still above the Fed’s 2% target and employment figures holding strong, the central bank may continue resisting calls for a rate cut.

That sets the stage for the US dollar index to remain buoyant in the weeks ahead.

“We believe the dollar rally has more legs,” said Jane Foley, head of FX strategy at Rabobank. “The Fed’s hold strategy, combined with persistent inflation and geopolitical risk, should keep the dollar supported.”

The bullish outlook for the US dollar index comes at a time of heightened global uncertainty, making it a safe haven for institutional investors and hedgers.

As August unfolds, traders and analysts are keeping a close eye on upcoming economic data—including CPI inflation reports, job numbers, and Fed meeting minutes.

These will provide clues about the next move for interest rates and, by extension, the trajectory of the US dollar index.

If economic strength continues to hold, DXY may break through psychological resistance at 100.00—a level not seen since early 2023. But any hint of dovish pivot by the Fed could reverse the gains just as quickly.

Bottom Line for US dollar index

The US dollar index is back in focus, surging to multi-month highs and shaking up global markets. As the Fed sticks to its current policy, all eyes remain on how long the dollar’s dominance will last—and how long Bitcoin and other risk assets can withstand the pressure.

The US dollar index is firmly back in the spotlight, sending shockwaves through global markets.

As the US dollar indexclimbs higher, crypto, equities, and commodities are all feeling the heat. With the Fed standing its ground, the US dollar index could maintain its bullish momentum.

For traders and investors alike, the US dollar index remains the critical gauge of market sentiment, strength, and future financial direction.