In late trading on Thursday in New York, the dollar index fell more than 1%. This followed coordinated actions by major global central banks during a "Super Central Bank Week," which heightened market concerns about inflation being more persistent than anticipated and triggered ripple effects across currency and cryptocurrency markets.
Seven major central banks, including the Federal Reserve, European Central Bank, Bank of Japan, Bank of England, Bank of Canada, Swiss National Bank, and the Riksbank, all maintained their interest rates unchanged at their meetings held between March 17th and 20th. This unified stance, coupled with upward revisions to inflation forecasts, unsettled traders.
The Federal Reserve raised its forecast for core PCE inflation by the end of 2026 from 2.4% expected in December to 2.7%. The European Central Bank, meanwhile, anticipates an average inflation rate of 2.6% in 2026, only slowing to 2.0% and 2.1% in 2027 and 2028, respectively.
The ongoing Middle East conflict, particularly disruptions near Iran's South Pars gas field, has led to rising energy prices, fueling hawkish sentiment. Haru Chanana, a strategist at Saxo Bank in Singapore, warned that the current situation is fundamentally shaking markets. "It's impacting the lifeline of the global energy system. What's unsettling the market right now is the escalating risk of stagflation."
The risk of stagflation refers to a scenario of slowing economic growth coupled with accelerating inflation, making it difficult for central banks to maneuver. Further interest rate hikes would stifle economic growth, while rate cuts would push prices higher. Markets are currently digesting this "dilemma."
Dollar Weakness Synchronized with Crypto Decline Breaks Norm
Historically, a weaker dollar has typically boosted Bitcoin. During the 2020-2021 cycle, the dollar index (DXY) steadily declined from above 102 to below 90, while Bitcoin prices surged from under $10,000 to over its then-all-time high of $60,000 during the same period. The logic was clear: as the dollar's purchasing power diminished, investors tended to seek assets with better store-of-value capabilities.
However, this time, both are falling. Bitcoin dropped approximately 4% to around $71,622 on March 18th, prior to the Federal Reserve's decision. Ethereum saw a decline of about 6%. At the time of this report, Bitcoin is trading at $70,221, down 1.21% over the past 24 hours, with a market capitalization of $1.40 trillion and a 24-hour trading volume of nearly $45.87 billion.
The Fear and Greed Index currently stands at 11, in the "Extreme Fear" zone. Bitcoin's 200-day return is -35.13%, and its one-year performance is -18.52%.
This correlation breakdown is noteworthy. If dollar weakness persists while cryptocurrencies remain under pressure, it challenges one of the most cited bullish narratives in the digital asset market. Nevertheless, periods of divergence have typically been temporary, with the negative correlation re-establishing itself over longer time horizons.
Traders Eye Focus Ahead of Rate Decisions and Inflation Data
The next Federal Open Market Committee (FOMC) meeting is scheduled for May 6th-7th, 2026. While markets currently anticipate rates to remain unchanged, the upward revision of PCE forecasts to 2.7% has further shifted market expectations.