Bitcoin’s Lack of Reaction to Weak Dollar Tests Historic Inverse Link

The U.S. dollar is on pace for a losing week, with positioning data suggesting investors are more bearish on the greenback than at any point in over a decade.

The U.S. Dollar Index (DXY) was trading around 96.9 in early U.S. hours Friday, up 0.1% on the day but still tracking a roughly 0.6% weekly decline. Analysts at Bank of America (BofA) Securities noted that underweight exposure to the dollar has fallen below levels seen in April 2025, marking the weakest positioning since their dataset began in 2012.

While concerns over Federal Reserve independence have eased following Kevin Warsh’s nomination as Fed chair, BofA said that shift has not translated into renewed demand for U.S. assets or the dollar. Investors are reportedly increasing FX hedge ratios, trimming U.S. exposure, and anticipating further reserve diversification away from the dollar.

That said, much of the survey data predates a stronger-than-expected U.S. jobs report, which could temper bearish sentiment. Resilient economic data and shifting Fed expectations remain near-term supports for the currency.

Historically, bitcoin has tended to move inversely to the dollar. A weaker dollar makes BTC cheaper for global buyers and loosens financial conditions, often benefiting risk assets.

However, that relationship has recently shifted. Since early 2025, bitcoin and the DXY have shown a positive correlation. Despite a 9% drop in the dollar last year and an additional 1% decline this year, bitcoin has fallen 6% in 2025 and is down 21% year-to-date. The 90-day correlation between BTC and the dollar recently climbed to 0.60, its highest level since April 2025.

If the correlation persists, a deeper dollar slide may not automatically lift bitcoin. Conversely, an overcrowded bearish dollar trade raises the possibility of a short squeeze, where a sudden rebound forces traders to cover positions, potentially boosting both the dollar and BTC simultaneously.

FAQ 💵

• Why is the U.S. dollar falling?
  Investors hold record underweight positions and expect further diversification away from USD.
• Does a weaker dollar help bitcoin?
  Historically yes, but recent data shows a positive correlation.
• What is the current BTC–DXY correlation?
  About 0.60 on a 90-day basis.
• Could a short squeeze impact bitcoin?
  Yes, a sharp dollar rebound could lift BTC alongside it.

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