Bitcoin resilience tested as U.S. dollar climbs to 18-month high

The U.S. dollar strengthened sharply on Monday, with the Dollar Index reaching roughly 102.5 — its highest level in nearly 18 months — after climbing from about 99 in early September. The index now sits well above its 200-day moving average, a technical indicator market participants often view as signalling growing bullish momentum for the currency. Federal Reserve policy helped underpin the dollar's advance. The Fed raised its policy rate by 25 basis points in September to a 3.75%–4.00% range, and markets are increasingly pricing the possibility of further tightening, with a target range near 4.5%–4.75% by June 2027. Rising Treasury yields alongside concerns about inflation and government borrowing have pushed long-term U.S. yields to levels not seen in over two decades. The euro's decline has been a major contributor to the dollar's gains because the euro accounts for 57.6% of the DXY basket. The euro fell toward 1.12 on Monday, a roughly 17-month low, as fiscal pressures in France and renewed political uncertainty in Spain weighed on investor confidence. French deficit and borrowing-cost concerns ahead of next year’s presidential election and Spain’s announced snap election for Nov. 29 were cited as drivers of euro weakness. Those factors combine to create headwinds for risk assets. A stronger dollar increases the cost of servicing dollar-denominated debt outside the U.S. and reduces overseas investors’ purchasing power, while higher U.S. interest rates make cash and government bonds relatively more attractive. Still, bitcoin was trading around $86,000 after a robust start to October, showing resilience even as financial conditions tightened. Market participants will likely monitor further moves in U.S. yields, Fed rate expectations and European political developments for clues on whether the dollar's strength persists and how it will affect risk markets going forward.