The drop coincided with the publication of the conclusions of the FED’s last meeting. Bitcoin has appreciated by 65% so far this year and by 28% in August.
Last July 19th, the weighted index of the US dollar (USDX) fell to 92.15, a value not seen since May 2018. Concerning Bitcoin, it has appreciated by 65% so far this year and by 28.3% in August.
The USDX index is calculated based on 100. When it is above that value, the index reflects an appreciation of the US dollar compared to a basket of currencies including the euro, the Japanese yen, the British pound, the Canadian dollar, and the Swiss franc. When it drops below 100, it implies that the US fiat currency is depreciating against that basket of currencies.
The new decline in the US dollar coincided with the recent publication of the minutes of the meeting that the US Federal Reserve (FED) held on June 28th and 29th. In the document, they express concern about the continuous negative impact of the COVID-19 pandemic on the economy.
The USDX index, which was above 100 in May, has since lost more than 8 points, dropping to 92.15 last August 19th. After that, the said index recorded a recovery and is at 93, at the time of writing this article. The lowest level that it reached on August 3rd was 92.63.
Concerning Bitcoin, it broke the resistance of US 12,000 last August 17th. It then experienced a decline of 2% to reach USD 11,761 at the time of writing this article.
The officials at the Federal Open Market Committee (FOMC) meeting and the governors of the FED expressed their opinions in the minutes. They say that they “agreed that the current public health crisis would greatly impact the picture of the economy, employment and inflation, in the medium term.”
The minutes highlight a consensus on the need for more financial aid by Congress. However, they began their recess in August without an agreement on new aid, since contributions to the unemployed ended in late July.
Last August 19th, Jerome Powell said that the policies to follow will depend on the actions that the government takes “to provide relief and promote recovery for as long as necessary.”
Powell noted that the FED will take extensive action “to more directly support the flow of credit in the economy for households, businesses of all sizes, and state and local governments.” Powell clarifies that it is a loan policy, not a spending policy.
Statements by the FED on the impact of the health crisis on the economy influenced the drop in the USDX index on August 3rd. The release of the economic figures for the second quarter of 2020 by the Office of Economic Activity (BEA), which indicated a record contraction of the Gross Domestic Product (GDP) by 32.9% was another factor. This decline in GDP led to the largest quarterly decline in the US economy since the BEA began its records in 1947.
By Alexander Salazar
