Crypto market steadies as sliding US dollar sets the stage for FOMC decision
The cryptocurrency market regained its footing on Monday, January 26, as weakness in the US dollar and strength in traditional risk assets helped calm selling pressure ahead of a closely watched Federal Reserve interest rate decision.
Bitcoin and Ethereum, which had been under pressure in recent sessions, bounced alongside equities and precious metals. Bitcoin (BTC) recovered from an intraday low near $87,000 to trade around $88,400, while Ethereum (ETH) advanced toward the psychologically and technically important $3,000 barrier. The total market capitalization of digital assets climbed back to the $3 trillion mark, signaling renewed risk appetite after a choppy start to the week.
The stabilization in crypto did not happen in isolation. Investors were tracking a broad-based move higher in traditional markets. US stock indices advanced more than 0.50%, with both the Dow Jones Industrial Average and the S&P 500 extending gains as traders positioned ahead of a heavy earnings calendar. Mega-cap technology names – the so‑called Magnificent 7, including Tesla, Microsoft, Apple, and Meta Platforms – are set to report results, and expectations around those numbers are feeding into broader sentiment across both equities and digital assets.
Precious metals joined the rally. Gold broke through the landmark $5,000 level for the first time in history, a move that underscored ongoing demand for perceived safe havens at a time of rising geopolitical and policy uncertainty. Silver held firmly above $100, defending a key resistance-turned-support zone. The simultaneous strength in gold, silver, and risk assets reflects a nuanced environment in which investors are hedging downside risks while still willing to take on exposure to growth-sensitive sectors.
In contrast, the US Dollar Index (DXY) came under heavy pressure. The gauge, which tracks the greenback against a basket of major currencies, fell to its weakest level since September of last year. From its peak earlier in 2026, the dollar has now dropped more than 2.6%, with a growing portion of capital rotating into gold and other non-yielding assets. A softer dollar typically provides a tailwind for dollar-denominated instruments, including Bitcoin and other cryptocurrencies, by making them relatively cheaper for non-US buyers and by signaling looser financial conditions.
The next pivotal event for markets is the Federal Open Market Committee’s upcoming interest rate decision. Economists and prediction-market traders broadly expect the Fed to leave its benchmark rate unchanged in a range between 3.50% and 3.75%. After three consecutive rate cuts, officials are widely seen as stepping back to evaluate how prior easing is feeding through to the real economy and inflation dynamics.
A pause at this stage serves multiple purposes. First, it gives policymakers time to monitor lagging indicators such as wage growth, credit demand, and corporate investment. Second, it reflects growing confidence that the economy remains resilient enough to function without further immediate stimulus. Unemployment has stabilized at historically low levels, suggesting that the labor market, while cooling from the post-pandemic boom, is not in distress. Inflation, meanwhile, has drifted closer to the Fed’s 2% target, easing some of the urgency that drove earlier hikes and, more recently, cuts.
Analysts estimate that the economy expanded by roughly 5% in the fourth quarter, building on a 4.4% pace previously recorded in Q4. Such robust growth, if confirmed, gives the Fed more flexibility: it can justify holding rates steady to avoid re‑igniting inflation, while still signaling that the door remains open to further cuts if data deteriorate. For crypto markets, this balancing act is crucial. A central bank that appears overly hawkish can spook speculative assets, while one that appears credibly dovish without panicking investors tends to support a search for yield and risk.
Beyond the Fed, traders are also preparing for another potential macro shock: a partial US government shutdown. The odds of a shutdown have climbed above 70%, according to betting markets, as political tensions rise around funding for key agencies, including Immigration and Customs Enforcement and the Department of Homeland Security. Even a short-lived shutdown can dent confidence, delay data releases, and unsettle markets that are already nervous about policy uncertainty.
For crypto, a shutdown carries several implications. Regulatory processes could slow, affecting rulemaking, enforcement actions, and approvals across the digital asset ecosystem. On the other hand, heightened focus on fiscal dysfunction may bolster the narrative that decentralized, non-sovereign assets like Bitcoin serve as a hedge against political risk and long-term debt concerns. Historically, moments of institutional stress have provided rhetorical fuel for crypto advocates, even if short-term price reactions are mixed.
Another layer of risk is unfolding in the Middle East, where tensions have escalated following a major US military deployment ordered by Donald Trump. Forecast markets show rising probabilities of a direct attack on Iran, a scenario that would likely trigger a spike in oil prices and reignite inflation fears globally. Higher energy prices tend to filter through to transportation, manufacturing, and food costs, complicating central bank efforts to maintain price stability.
Such a geopolitical shock would have complex effects on the digital asset space. On one hand, renewed inflation concern could revive interest in Bitcoin’s hard-cap supply and its role as a potential long-term store of value. On the other hand, a severe risk-off episode sparked by war could prompt investors to dump volatile assets, including cryptocurrencies, in favor of cash and short-term government bonds. In previous crises, crypto has sometimes traded more like a high-beta tech stock than a pure safe haven, underscoring that its behavior depends heavily on the type and intensity of the shock.
Within the crypto market itself, technical and structural factors are shaping price action alongside macro drivers. Bitcoin’s recovery from intraday lows suggests buyers are willing to defend key support zones, possibly linked to long-term moving averages or previous breakout levels. Ethereum’s approach to the $3,000 resistance is equally important: a decisive break higher could invalidate the recent downtrend and trigger a new leg up driven by leveraged traders and momentum algorithms.
Altcoins are also reacting to this environment of tentative stabilization. Some large-cap tokens have begun to carve out basing patterns after weeks of drawdowns, with indicators such as the relative strength index (RSI) moving out of oversold territory. If Bitcoin and Ethereum sustain their gains post‑FOMC, market participants may rotate into higher-beta names in search of outsized returns, potentially leading to another wave of sector-specific rallies in areas like decentralized finance, gaming, and layer‑2 scaling solutions.
Market structure has evolved significantly compared to previous rate cycles. Institutional participation is deeper, derivatives markets are more liquid, and on‑chain data provides a clearer picture of investor behavior. Funding rates on perpetual futures, the balance between spot and derivatives volumes, and the positioning of large holders (“whales”) are all being scrutinized for clues about where the market might head after the Fed meeting. A neutral or mildly positive funding environment suggests that the current bounce is not yet driven by excessive leverage, which could make it more sustainable if macro conditions cooperate.
Correlation dynamics are another critical factor. Over recent months, crypto assets have alternated between trading in lockstep with tech stocks and decoupling to reflect idiosyncratic drivers such as protocol upgrades, regulatory news, and ETF flows. The present environment, with equities rallying and the dollar weakening, is historically supportive for digital assets. However, should earnings from the Magnificent 7 disappoint, or guidance turn sharply cautious, the resulting equity selloff could spill over into crypto even if Fed policy remains benign.
Investors are increasingly aware that monetary policy is not the only regulatory force shaping the industry’s trajectory. Ongoing global efforts to define clear rules for stablecoins, trading platforms, and token issuance continue to influence valuations. In a backdrop where the Fed is on pause, attention often shifts back to legislative and regulatory developments. Any signs of stricter oversight, enforcement actions, or new compliance requirements could temporarily dampen sentiment, while moves toward clarity and harmonization tend to be welcomed by more risk‑averse institutional players.
For long-term participants, the current mix of a weaker dollar, a likely Fed pause, strong economic growth, and elevated geopolitical and political risk presents both threats and opportunities. On one side, the macro backdrop could support a gradual re-rating of digital assets as investors search for diversification away from traditional portfolios anchored in stocks and bonds. On the other, sudden shocks – whether from Washington budget battles, Middle Eastern flashpoints, or negative earnings surprises – could inject renewed volatility and test conviction.
In the near term, all eyes remain on the FOMC statement and press conference. Traders will parse every line for hints about the future path of rates, balance sheet policy, and the Fed’s tolerance for above-target inflation in exchange for sustained growth. Subtle changes in language about “risks to the outlook” or “the balance of risks” often matter as much as the rate decision itself. A message that acknowledges disinflation progress while emphasizing data dependence is likely to be interpreted as moderately supportive for crypto and other risk assets.
Ultimately, the latest stabilization in the crypto market underscores how deeply intertwined digital assets have become with the broader macro-financial landscape. Bitcoin, Ethereum, and the wider ecosystem no longer move solely on internal narratives; they respond to the same forces that drive currencies, commodities, and equities. As the US dollar retreats, the Fed pauses to assess its next steps, and geopolitical and political uncertainties mount, the crypto market is once again positioned at the intersection of technology, finance, and global risk – and what happens in the coming days could set the tone for the rest of the quarter.