US Dollar Index (DXY) Hits 4-Month Low: What This Could Mean for Bitcoin

The US Dollar Index (DXY) has fallen to a four-month low amid growing speculation of a “yen intervention” by the US and Japan.

Analysts warn that the DXY may face further downside pressure. Now, market attention is shifting to what the next policy moves could mean for digital assets.

Why Is The US Dollar Index (DXY) Dropping?

The US Dollar Index (DXY), which tracks the value of the US dollar against a weighted basket of six major currencies, is coming under mounting pressure in global markets. After posting its worst annual performance since 2017, the dollar has started the year on a weak footing, according to The Kobeissi Letter.

So far this month, the DXY has dropped around 1.5%. At the time of writing, the index stood at 97.1, its lowest level since September. At the same time, traditional safe-haven assets such as gold and silver have rallied to fresh record highs.

“If the US Dollar closes red this year, it will mark its first back-to-back annual loss since 2006-2007. When you zoom out, the ‘mystery’ behind what’s happening in gold and silver becomes obvious. The denominator of ALL assets (fiat) is deteriorating,” Adam Kobeissi added.

The latest decline comes amid speculation over a potential yen intervention. Reuters reported that the New York Federal Reserve conducted rate checks on Friday, a move markets interpreted as a signal that the US could support Japan in intervening in currency markets.

Expectations of coordinated action pushed the yen to a two-month high, while weighing on the dollar. Meanwhile, investors are positioning cautiously ahead of the upcoming Federal Reserve policy meeting and a potential announcement by the Trump administration regarding Jerome Powell’s successor.

Despite President Trump’s repeated calls for aggressive rate cuts, market expectations for an imminent policy shift remain low. Data from the CME FedWatch Tool shows the probability of a 25 bps rate cut at just 2.8%.

Analysts Highlight Bearish Outlook for US Dollar Index

Against this backdrop, analysts are warning that further downside risks may lie ahead for the US Dollar Index. Market analyst Rashad Hajiyev noted that the scheduled FOMC meeting could act as a catalyst for a breakdown below the DXY’s 18-year support level.

“I believe, Federal Reserve Open Market Committee next week could be a trigger for a major breakdown with DX initially headed to $85 and then $75. Coming dollar sell-off could be catalyst for a continuation of upside move in gold and silver,” he wrote.

Another analyst, Ted Pillows, highlighted a descending triangle formation on the DXY chart. This technical pattern is often associated with bearish continuation.

The structure suggests increasing downside pressure and adds to concerns that the index could see a deeper decline.

Will Yen Strength and Dollar Weakness Reshape Bitcoin’s Trajectory?

The upcoming moves in the DXY could have implications for the crypto market. Historically, Bitcoin, the largest cryptocurrency by market capitalization, has shown an inverse correlation with the US Dollar Index. As a result, further weakness in the DXY could support upside momentum for BTC.

At the same time, a weaker dollar typically lowers borrowing costs, improves global liquidity, and encourages risk-taking, conditions that tend to favor digital assets.

Notably, one analyst highlighted that Bitcoin’s correlation with the Japanese yen is currently near record highs. This suggests that a yen intervention that strengthens the currency could also support BTC.

“There is still hundreds of billions of dollars tied into the yen carry trade,” the post read. “So yen strength creates short term risk for crypto. But dollar weakness creates long term upside. Because Bitcoin is still well below its 2025 peak. It is one of the few major assets that has not fully repriced for currency debasement. If coordinated intervention actually happens and the dollar weakens, capital will look for assets that are still cheap relative to the macro shift. Historically, crypto benefits strongly from that environment.”

Analyst Donny added that DXY movements can have immediate and delayed impacts on risk assets. He said that if DXY drops below the key 96.2 level, an effect is expected around April or May 2026.

“BTC can and IMO will still play out to the upside soon as I’m expect a mean reversion move alongside MSTR. But to know DXY is nuking in the background increases all-time high targets by a big margin. If we get continued downside follow through to lose the 96.2 low on DXY, expect effects to kick in around April/May. A lot of upside flowing on top of each other in the first half of 2026. Confirmed above 107.4K BTC and 231 MSTR, below 96.2 DXY,” he remarked.

The next several weeks may define both the dollar’s direction and the crypto market’s path.