Bitcoin Slips Below $118K as Dollar Rallies on Strong U.S. GDP Data
Bitcoin (BTC) hovered below $118,000 on Tuesday as stronger-than-expected U.S. economic growth sent the dollar index (DXY) to a five-week high, prompting renewed caution across risk markets, including crypto.
The DXY climbed to 99.34—its highest level since June 23—after second-quarter GDP data showed the U.S. economy expanded at a 3% annualized rate, well above forecasts. The surprise growth was fueled by a sharp drop in imports and a rebound in consumer spending, which rose 1.4% after a modest 0.5% increase in Q1. Inflationary pressures eased as well, with the gross domestic purchases price index falling to 1.9% from 3.4%.
The upbeat figures have solidified expectations that the Federal Reserve will hold rates steady at its policy meeting on Wednesday.
The dollar’s recent rebound follows a prolonged decline earlier this year and has caught the attention of traders concerned about the potential for a short squeeze. Analysts warn that overextended bearish positioning in the dollar could trigger broader risk-off moves across equities, emerging markets, and cryptocurrencies.
“Overcrowded short positions in the dollar pose near-term risks,” said QCP Capital’s Market Insights team. “Much of 2025 has been dominated by the weak-dollar narrative, driven by the ongoing Tariff War. But with the dollar already down 10% year-to-date, the trade is looking increasingly stretched.”
QCP highlighted extreme short positioning in USD/JPY as a particular concern, noting that the trade is both popular and costly to maintain. “A reversal in the dollar could force widespread unwinds across asset classes,” the firm cautioned.
