This week’s U.S. economic data releases will be crucial in determining whether the dollar continues its weakening trend, potentially providing a boost to Bitcoin (BTC) and other risk assets.
On Tuesday, the U.S. manufacturing data is expected to indicate continued contraction, which could signal further weakness in the dollar index and a potential rise in Bitcoin. However, traders should remain cautious of a possible “growth scare” similar to August, which could negatively impact risk assets. According to ING, Friday’s U.S. jobs report could exacerbate dollar weakness.
Bitcoin, the top cryptocurrency by market value, dropped over 10% in the week leading up to September 1, erasing the gains from the previous week as the dollar index’s decline paused. The upcoming U.S. economic data will likely influence whether the dollar resumes its two-month downward trend, which could act as a tailwind for cryptocurrencies.
The economic reports kick off on Tuesday with the Institute of Supply Management’s (ISM) manufacturing purchasing managers’ index (PMI) for August. Consensus expectations suggest the index will rise to 47.5 from July’s 46.8, indicating the steepest contraction in factory activity since November 2023. A weaker reading could strengthen the case for the Federal Reserve to cut interest rates, potentially weakening the dollar and increasing demand for riskier assets. The CME’s FedWatch tool currently indicates a 70% probability of a 25 basis point rate cut and a 30% chance of a 50 basis point cut in September.
Interest rate cuts are generally positive for Bitcoin, which is highly sensitive to changes in monetary liquidity. As Noelle Acheson, author of the “Crypto Is Macro Now” newsletter, explained, a weaker dollar could boost liquidity by lowering the cost of capital. Moreover, expectations of sustained dollar weakness could enhance Bitcoin’s appeal as a hedge and increase spending power in other markets. The dollar’s role as the denominator in the BTC/USD pair also plays a significant role.
However, July’s ISM PMI, which was weaker than expected, triggered recession fears, leading to a decline in risk assets, including a 3.7% drop in Bitcoin to $62,300. This underscores the importance of closely monitoring the PMI data, as a worse-than-expected report could spark another “growth scare” and negatively impact risk assets, as noted by Markus Thielen, founder of 10x Research.
Attention will then shift to the JOLTS job openings data on Wednesday, followed by the ISM services PMI, ADP employment report, and weekly jobless claims on Thursday. The highlight of the week will be Friday’s nonfarm payrolls (NFP) report. Analysts at ING predict that a strong NFP report could solidify expectations for a 25bp rate cut when the Federal Reserve meets on September 18. However, if the report shows just 125,000 job additions and a rise in the unemployment rate to 4.4%, the dollar could weaken further.
From a technical standpoint, Bitcoin remains under pressure ahead of these key data releases. Indicators like the MACD histogram suggest growing downside momentum. Valentin Fournier, an analyst at BRN, noted that the MACD indicates increasing negative momentum, while the RSI is neutral. The lower band of the Bollinger Bands hovers around $56,000, hinting at potential further declines to this level.
