Bitcoin drops for third straight day as dollar hits 21-month high, US wages eyed

Bitcoin fell for the third straight day on Friday as lingering geopolitical tensions and rising oil prices pushed the U.S. dollar higher.

The leading cryptocurrency by market value was trading at $41,400 during the early European session, representing a 2.5% drop on the day. Sellers regained dominance after the cryptocurrency failed to establish a foothold above $45,000 earlier this week.

"Asian desks and high frequencies are cutting exposure on BTC while long-only funds in European are selling. Brokers are also selling on behalf of clients more than usual as sentiment leaning slightly more bearish at the moment," Laurent Kssis, a crypto exchange-traded fund (ETF) expert and director of CEC Capital, told CoinDesk in a Telegram chat.

The dollar index, which tracks the greenback's value against majors, jumped to 98.08, the highest since June 2020, according to a chart provided by TradingView.

The haven bid for the greenback strengthened during Asian hours triggered by a flight to safety as Russian forces started shelling Europe's largest nuclear power station in Ukraine. Asian stocks tanked to a 16-month low while oil remained in demand above $110 per barrel on both sides of the Atlantic.

Assets priced or traded in dollars typically drop when the dollar rises. According to Kevin Kelly, co-founder and global head of macro strategy at Delphi Digital, the greenback and bitcoin have a pretty inverse correlation.

"2017 was one of the worst years for the dollar, and that coincided with a huge run in bitcoin," Kelly said in the latest weekly analyst call. "We saw bitcoin runup in early 2021. That was on the back of the dollar weakness."

The U.S. Labor Department's closely watched employment report is scheduled for release at 13:30 UTC. The report is expected to show that average hourly earnings rose another 0.5% in February, pushing the year-over-year gain to 5.8%, according to Bloomberg. The non-farm payrolls (NFP) figure is likely to show the economy added 415,000 jobs, pushing the unemployment rate down to 3.9% from 4%.

Focus on wage growth

While the NFP may grab headlines, the market is likely to move more on the wage growth represented by average hourly earnings.

An above-forecast wage growth may bolster inflation worries, validating the U.S. Federal Reserve's (Fed) hawkish stance. The dollar may find more buyers in that case, possibly bringing selling pressure to asset prices, including bitcoin.

According to macroeconomic theory, an uptick in wages can push up inflation. As wages rise, employers pass on the increase in labor cost to the final consumer, resulting in an uptick in the general price level in the economy. Workers demand higher wages in response, setting a vicious cycle of wage-push inflation in motion.

In recent months, the Fed has changed its stance to controlling price pressures from the dual mandate of price stability and maximum employment. U.S. inflation at the consumer level has risen to a four-decade with the ongoing Russia-Ukraine military conflict is likely to put further upward pressure on the general price levels.

On Thursday, Fed chair Jerome Powell told lawmakers that the central bank is poised to raise rates by 25 basis points later this month and that they are prepared to do whatever it takes to control inflation, even at the expense of the economy, according to The New York Times. Markets expect the central bank to deliver five quarter percentage point rate hikes within the year.