The anxious wait in the markets continues before the US Federal Reserve (FED) interest rate decision. The Fed will announce its interest rate decision at 21.00 tonight. Experts say that Bitcoin may downshift in the face of Powell’s hawk signals.
Bitcoin moves cautiously before Fed rate decision
The cryptocurrency market will price US and European economic data this week. Ahead of the critical dates, Bitcoin has regained its footing, up 70% since January. According to some observers, the rally could turn into temporary resistance if Fed chairman Jerome Powell avoids signaling a pause today.
The US Federal Reserve (FED) will announce its interest rate decision at 21.00 tonight. President Powell will appear before the press half an hour after the meeting. Estimates are that the Fed will raise interest rates for the last time by 25 basis points to the range of 5-5.25%. Thus, the Fed is expected to end the so-called tightening cycle that splashed into the cryptocurrency market last year.
Bank failures upset Fed’s rate decision expectations
Recently, the debt ceiling, recession fears, the crisis in regional banks, the sharp decline in banking stocks, and interest rate cut expectations have strengthened. The aggressive pricing of the pause and rate cuts means Powell should confirm the same at press time. Otherwise, Treasury yields and the US dollar (USD) could jump. An increase in yields and the dollar has historically been bearish for Bitcoin.
Dick Lo, founder and CEO of TDX Strategies, said: “As the market expects a recession after this hike, the phrase ‘additional policy tightening may be appropriate’ should be omitted from the description and replaced with more open-ended language that leaves the door open for further rate hikes or pauses. i.e. we will look for dependency on data,” he says.
“We hope that Chairman Powell may hesitate to be definitive when it comes to a recession that will disappoint the market,” adds Lo.
Markets have seen a classic rise in risk since October 2022, in anticipation of the Fed’s return to the dove. The dollar index, which measures the strength of the dollar against fiat currencies, fell more than 14% from the beginning of October. Meanwhile, WallStreet’s tech-heavy Nasdaq index and Bitcoin rose 25% and 50% over the same period.
Therefore, Powell’s lack of faith in signaling the pivot could disappoint the markets, as Lo warns. This will trigger a strong recovery in the dollar.
Bitcoin price targets $30,000
Bitcoin price is trading above $28,500 ahead of the Fed rate decision. It touched a daily low of $27,935. The highest price was set at $28,881. Moreover, the slight 5% increase in trading volume indicates increased investor interest.
The US dollar index (DXY) dropped to 101.51 today. DXY is volatile and will likely rise higher after the Fed rate hike. This means pressure on the Bitcoin price. However, Powell’s hints that there will be a pause in the coming months are creating a positive mood.
cryptocoin.comWe will be presenting the reactions of the markets after the Fed rate decision on this page.
Expert expectations
Chris Weston, Pepperstone’s head of research, expressed a similar view on Twitter.
“Of course, bank equity has taken a hit,” Weston said. “But as nothing is priced in for June and cuts begin in July, if the Fed presents a lazy tightening trend (data-driven), it indicates that the risk has shifted to the hawkish side.”
Looking at market pricing – is there are similar set-up as the RBA meeting..?
Sure bank equity has been hit – but with nothing priced for June and cuts starting in July, if the Fed offer a lazy tightening bias (data dependent) it feels the risk skewed on the hawkish side pic.twitter.com/299QzlU7bW
— Chris Weston (@ChrisWeston_PS) May 2, 2023
Weston said that pre-Fed dove pricing is similar to the setup seen before the Australian CBT’s latest rate decision. On Monday, the RBA increased interest rates by 25 basis points. Contrary to expectations of an ongoing recession this year, it warned of further tightening ahead. This hawkish surprise caused the Australian dollar to rise overall.
According to Weston, post-meeting yields and a bounce in the dollar could aggravate the banking crisis. However, this will likely be short-lived. Bitcoin has seen a positive performance above expectations during the recent banking turmoil. Thus, it strengthened its safe harbor appeal.
“I assume this first move in the dollar will be short-lived,” Weston said. “Because any reasonable increase in bond yields will see bank stocks fall another step and traders will re-apply USD and crude oil shorts and buy gold and JPY as a hedge,” he said.
