Bitcoin held just under $78,000 as August closed, with the dollar strength that pushed the Japanese yen past its intervention line providing the same macroeconomic backdrop for cryptocurrency markets.
Dollar Strength Pressures Risk Assets
The dollar strengthened as rate-hike bets lifted the greenback against major currencies, with the yen breaking through the 160 level against the dollar. Federal Reserve Chair Kevin Warsh reinforced hawkish expectations during his Jackson Hole address, saying the Fed's predominant focus should be on prices. Markets assigned an estimated 35% probability to a 25-basis-point September rate increase before the speech. A stronger dollar typically pressures risk assets including Bitcoin, as higher rates reduce the appeal of non-yielding stores of value.
Bitcoin Stabilizes After August Rally
Bitcoin's August rally from approximately $63,500 to above $80,000 was supported by $2.8 billion in ETF inflows across eight consecutive sessions. The cryptocurrency subsequently retreated to trade near $78,000, finding a consolidation range between $77,000 and $79,000. U.S. spot Bitcoin ETFs recorded $201.9 million in net withdrawals on Aug. 28, ending nine consecutive inflow sessions, before stabilizing.
PCE Inflation Above Fed Target
Bureau of Economic Analysis data showed headline personal consumption expenditures inflation reached 3.7% year over year in July, with core PCE remaining at 3.3%. Both indexes rose 0.2% from June. The annual figures remained above the Federal Reserve's 2% objective, keeping rate-hike speculation alive and supporting dollar strength.
Treasury Buybacks Provide Liquidity Backdrop
The U.S. Treasury Department increased its long-end liquidity-support buybacks from a maximum of $2 billion to at least $4 billion per operation starting Sept. 9. The program aims to improve trading liquidity in older Treasury securities. While it does not create central-bank reserves or constitute quantitative easing, the buyback program provides a liquidity backdrop that has historically supported risk asset sentiment.
