The US dollar index crashed to its lowest level since April 2022 as the trade war between China and the US escalated and jitters in the bond market continued.

The DXY index, which tracks the greenback against a basket of developed-world currencies like the euro, sterling, and Japanese yen, dropped to $99—down 10% from its highest point this year.

This crash came after China announced its retaliatory tariffs against the United States. All US goods entering the country will now face a universal 125% tariff. Beijing made this announcement after the US imposed a 145% levy on most Chinese goods. As such, the retaliation signals that the game of chicken will continue, with Trump likely to respond in kind.

The ongoing crash in the US dollar index may benefit risk assets like Bitcoin (BTC) and altcoins. That’s because a weaker US dollar typically pushes investors toward Bitcoin, which is often viewed as a store of value due to its 21 million supply cap.

Further, Bitcoin and most altcoins are primarily traded against either the US dollar or Tether (USDT), a stablecoin backed by the greenback. As a result, a falling dollar may make Bitcoin appear cheaper and more attractive.

Bitcoin and altcoin prices may benefit if the Fed slashes rates

The ongoing US dollar index crash is happening as investors remain concerned that the US may be heading towards a recession. A Polymarket poll places the odds of a recession in the US this year at 63%, while Kalshi’s odds are a bit higher at 65%. 

Mark Zandi, the chief economist at Moody’s, also put the odds of a recession at 60%, citing high tariffs as a major contributing factor.

With US inflation falling, there is increasing speculation that the Federal Reserve may intervene by cutting rates this year. Odds of an emergency rate cut have risen to 31% on Polymarket, while traders anticipate three cuts over the course of the year.

Bitcoin and altcoins tend to thrive when the Fed is cutting interest rates and when the US dollar index is declining. For instance, crypto prices surged during the pandemic, as the dollar index fell to $89.25 and the Fed implemented several rate cuts.

The weakening dollar partially explains why Bitcoin and other altcoins held steady on Friday. Bitcoin was trading at $82,000, while XRP hovered at $2.