The US Dollar Index (DXY), which tracks the greenback’s value against major currencies, has come under pressure this week and could continue to lose ground in the near term.

While reversals in the dollar are historically bullish for bitcoin, things could be different this time.

The reason for this expected divergence is because decline in the DXY is likely to stem from the likes of the European Central Bank (ECB) following the Federal Reserve’s (Fed) lead in fighting inflation with interest rate hikes. And bitcoin, a liquidity-sensitive risk asset, may struggle to benefit from dollar weakness resulting from currency traders buying the euro and other currencies on expected global tightening.

The dollar’s previous bearish trend dated 2020 and early 2021, which powered rallies in risk assets, including bitcoin, resulted from the Fed printing trillions of dollars to cushion the economy from the negative impact of the coronavirus pandemic. The Fed began closing the liquidity tap early this year and now other central banks are expected to follow suit.

According to a group of 48 economists polled by Reuters from May 10 to May 16, the ECB will likely raise the deposit rate in July and push it above zero by the end of September. The central bank’s deposit rate currently stands at -0.5%.

Yes, you read it right. In the last decade, interest rates across Europe and in Japan went negative as central banks struggled to jump-start the economy. In layman’s terms, a negative interest rate setup essentially means the lender is charged for lending money. The unnatural phenomenon sparked debate about whether the financial system is close to collapsing and…