The United States is the world’s largest economy and cryptocurrency’s biggest investor, it means large number of capital inflow into the crypto space are from the United States and with the U.S economy battered and unstable due to COVID-19, foreign policy, etc US investors, mainly institutional investors, have been increasing their investments in crypto space, the new safe haven, in the last one year.
However, on Friday, the U.S commerce department released retail sales report, which measures US consumer spending that contributed over 70% of US GDP estimated at about $13.4 trillion. Retail sales that has been on the decline for months and was predicted to come out at – 0.8%, unexpectedly came out at 0.7% in the month of August.
The unexpected improvement in consumer spending, in fact against the Consumer Confidence report that came out previously, bolstered U.S dollar attractiveness to 94 on dollar index as investors jumped on it and other dollar assets.
Why did investors jump on Dollar and how does it affect crypto and U.S dollar-quoted commodities?
The US dollar rose to a three-week high because capital inflow into American assets jumped as investors started predicting that the Federal Reserve (US central bank) could announce tapering (cutting down on bond buying -quantitative easing) at the Federal Open Market Committee (FOMC) meeting scheduled to be hold next week.
Quantitative easing is when government is buying debt (bonds) to support the economy. However, when government is cutting bonds purchase, it means the economy has started doing well enough to sustain itself without support.
This is why capital flow out of crypto space rose as institutional investors that are sustaining the crypto are now dumping their money on dollar assets – the very reason dollar value rose since Friday.
Market is about demand and supply, no demand in crypto space means falling/bearish market and demand in dollar means stronger US dollar – I actually bought dollar -sold GBPUSD- on Monday.
Here is why dollar quoted commodities like crude oil dropped. It is simple, because dollar products is now expensive for holders of other currencies. Therefore, demand for crude oil dropped against constant supply.
If FOMC announces tapering earlier than expected next week, crypto could fall even more!
