Morgan Stanely’s Mike Wilson has reportedly said recently that the investment bank expects a 10% drop of the US Dollar in the coming 12-months.
Mike’s statement is likely to boost the movement of Bitcoin price as an inverse correlation has become evident between the DXY Dollar Index and BTC/USD throughout 2020. The inverse relation became stronger after the global market rout after mid-March following the COVID-19 pandemic.
That’s why a gloomy outlook for the US Dollar throughout 2021 is bringing smiles to the Bitcoiners as they see the potential of a continued bull run towards US$20K and beyond.
US Dollar’s Sell-Off Continues.The US dollar’s sell-off has accelerated this week. More and more forex traders are selling off the greenback against foreign currencies. Thats why the value of the US Dollar dropped by 0.21% during overnight FOREX trading.
On Thursday, the US Dollar Index (DXY) dropped to 90.22, its lowest level since April 2018. Only after the greenback reached this lowest level, Morgan Stanley predicted a gloomy year ahead.
Mark Wilson (Morgan Stanley’s Chief Investment Officer and Chief US Equity Strategist) has said that both the Federal Reserve and the US government have become very aggressive with structural deficits, especially after the COVID-19 pandemic. Based on the US stance on reigning on structural deficits, Morgan Stanley predicted a crash of the US Dollar by another 10% in the coming 12-months.
Wilson went on to say:
“A weaker dollar is helpful for the world… A stronger one is more of a constriction on global growth… It is ultimately a positive story for reflation.”
The lead portfolio manager of JP Morgan & Chase Co. in Asia rates and forex, Julio Calegari, said that the US Dollar’s investment appeal reduced after the phenomenal post-pandemic growth of China.
Inverse Relation between Bitcoin Price and the US Dollar
BTC/USD and DXY have moved in opposite directions almost throughout this year. The inverse relation became more evident since COVID-19 emerged as a serious health hazard all across the world. After mid-March 2020, governments throughout the world started announcing lockdowns, which made the economic outlook uncertain.
The stock markets crashed. Investors also unloaded their profitable positions across investment to raise US Dollars. While the US Dollar price increased by 8%, the Bitcoin price crashed by almost 60% in just 2-days.
A complete role reversal happened on December 1, 2020, when Bitcoin reached its all-time high level at US$19,920.53, bringing the year-to-date profits up to 179%. On a weekly timeframe, the BTC/USD exchange rate increased by 5.61%, a complete opposite of the US Dollar Index’s performance.
What’ll Happen Next?
The dynamics continue in 2021 also. COVID-19 infection rates are increasing rapidly in the US. Meanwhile, a bipartisan bill to inject US$908 billion into the US economy has been proposed, which will further widen the yawning deficit.
The Fed has announced to keep up the bond-buying pace as the lower interest rate environment prevails. As the short-term yields of the US Treasury notes are already near zero, investors hope that the Federal Reserve will now buy longer-dated US Treasury notes.
The overall scenario of Bitcoin investment vis-a-vis the US dollar and bonds look stronger. These factors have heightened the expectation of a breakout above US$20,000 in the coming quarterly sessions.