Bitcoin could rise if ECB decision weakens the dollar

Bitcoin fell below $80,000 and traded around $78,800 as markets focused on the European Central Bank’s Sept. 10 policy decision. The cryptocurrency was down about 1% over 24 hours after stronger U.S. labor data revived expectations that interest rates could remain elevated.

The ECB decision could push the euro higher and the U.S. dollar index lower. The dollar index’s 57.6% weighting to the euro means a significant move in EUR/USD can drag the index down even if U.S. borrowing costs stay high. A drop in the dollar index that comes mainly from EUR/USD would reflect currency changes more than a broad easing of financing conditions.

If the euro strengthens while U.S. real yields and lending conditions stay restrictive, a rise in Bitcoin priced in dollars could partly reflect the coin becoming cheaper for euro-based buyers rather than wider increases in demand or liquidity. Between Sept. 1 and Sept. 3, Bitcoin rose 4.99% against the dollar and 4.63% against the euro amid a modest decline in U.S. real yields. From Sept. 6 to Sept. 7, Bitcoin fell 1.55% against the dollar and 1.65% against the euro.

Recent euro-area data offer mixed signals that could push the euro in either direction. Eurostat revised second-quarter growth to 0.6% quarter-on-quarter. Net exports contributed 0.9 percentage points to that gain, inventories subtracted 0.5 points, household consumption added 0.2 points, and fixed investment made little contribution. Headline inflation in the euro area rose to 3.3% in August from 2.9% in July, driven largely by a 14.3% rise in energy costs. Inflation excluding energy, food, alcohol and tobacco eased to 2.4% from 2.5%, and services inflation slowed to 3% from 3.3%.

The ECB’s July meeting account reported somewhat tighter credit standards for business loans and stricter mortgage requirements in the second quarter. The account noted financial conditions had tightened slightly since June as higher longer-term yields began to affect borrowing costs. Business lending rates were about 3.6% in May and market-based debt financing costs were near 4%.

The calendar adds near-term tests. U.S. producer-price data is due the same day as the ECB decision, and U.S. consumer-price inflation for August is scheduled for Sept. 11. If the euro lifts the dollar index and Bitcoin rises on Thursday but U.S. inflation pushes yields higher on Friday, market prices could adjust quickly. Market participants are watching whether any dollar weakening coincides with lower U.S. real yields or easier credit conditions, and whether Bitcoin gains appear in both dollar and euro terms.