Bitcoin And Crypto Ahead Of The Fed Hike Announcement – What to Expect

Nov 2, 2022

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Bitcoin And Crypto Ahead Of The Fed Hike Announcement – What to Expect

Originally posted here.
By: Jake Simmons

Overview

Today’s Federal Reserve (Fed) FOMC meeting could decide the fate of crypto and Bitcoin for the coming weeks and months. As NewsBTC has reported in recent weeks, financial markets around the world are hanging on every word from the Federal Reserve to predict future policies. Currently, there is little doubt that the FED will raise the interest rate by 75 basis points (bps) today, which would be the fourth consecutive hike. However, for the next meetings in December and January, the futures market is divided. To that extent, the main focus of today’s session will be on the signals that the FED sends with regard to a possible slowdown in the pace of rate hikes. Currently, the market assumes a 50% probability of a rate hike of 75 basis points in December. Related Reading: Fed Could Hike Interest Rates By 75 BPS, Here’s What It Means For Bitcoin Hawkish Or Dovish? As in previous meetings, Jerome Powell, Chair of the Federal Reserve, will probably not want to signal that a slowdown in the pace of rate hikes signals an earlier end to tightening or a lower peak rate. Dovish signals could be associated by the market with a slowing of the December rate hike by as little as 50 basis points. In a note to clients, Chris Weston, head of research at Pepperstone, wrote: In the Fed’s view, putting the U.S. into a recession is still a lesser evil than not tackling entrenched price pressures. It seems highly unlikely that the Fed will want to promote a positive reaction in risky assets, and the risks to markets in my mind are skewed to a hawkish reaction – equity up, bond yields and the USD lower. Therefore, Powell will likely push back on the “pivot” narrative at the FOMC by hinting at a higher peak rate. Presumably, Powell will also want to play for time. Related Reading: U.S. Federal Reserve Set To Hike Rates Above 400 BPs – How Will Crypto Market React? Quite crucial could be the next CPI data, which will be released on November 10 and the U.S. unemployment rate for October which will be released on November 4. If the Consumer Price Index (CPI) declines, this could be a sign that Powell’s policy is working and simply needs time. With the U.S. jobs market continuing to look relatively strong, Powell may have that time. Job opening numbers came in extremely strong. The beatings will continue. https://t.co/Fr2O1FPbka — Dylan LeClair 🟠 (@DylanLeClair_) November 1, 2022 Edward Moya, senior analyst at OANDA told CNBC: The labor market is going to cool, it’s just not happening as quickly as people thought and that should keep the Fed’s path to slowing rate hikes in place – it might not be in December, but it probably will be at that February meeting. What Are The Scenarios Emerging For The Bitcoin And Crypto? To predict a possible reaction of the Bitcoin and crypto market, it helps to look at the past performance of Fed rate hikes. Historically, the BTC price has been excessively volatile before and after the announcement. During the last rate hike in September, BTC dropped 5% within minutes and then showed a surprising rebound. The implications for the US dollar in particular will be crucial. In 2022, Bitcoin is showing a strong inverse correlation with the dollar index (DXY). When the DXY rises, Bitcoin falls and vice versa. The Bitcoin rally last week was triggered by the dollar index (DXY) showing weakness and taking a big hit. However, after falling to 109 points last Wednesday, the DXY rallied to as high as 111.689 points. This Wednesday morning, the DXY exhibited some weakness in the face of the FED decision and slipped from its one-week high against the major currencies again. At the same time, gold was up more than 1% on Tuesday as the U.S. dollar showed early signs of weakness. Bitcoin could follow this lead. So what to expect today? Simply put, there are two scenarios for Bitcoin and crypto today. If the FED continues to be hawkish, shows no sign of slowing the pace of rate hikes, and also fails to put a lower peak rate into play, the Bitcoin price is at risk of slipping below $20,000 again. However, if the FED makes comments about a “pivot”, even if only by hinting at slowing the pace of rate hikes, then the start of a new rally could be in the cards.

The Post

Today’s Federal Reserve (Fed) FOMC meeting could decide the fate of crypto and Bitcoin for the coming weeks and months. As NewsBTC has reported in recent weeks, financial markets around the world are hanging on every word from the Federal Reserve to predict future policies.

Currently, there is little doubt that the FED will raise the interest rate by 75 basis points (bps) today, which would be the fourth consecutive hike. However, for the next meetings in December and January, the futures market is divided.

To that extent, the main focus of today’s session will be on the signals that the FED sends with regard to a possible slowdown in the pace of rate hikes. Currently, the market assumes a 50% probability of a rate hike of 75 basis points in December.

Hawkish Or Dovish?

As in previous meetings, Jerome Powell, Chair of the Federal Reserve, will probably not want to signal that a slowdown in the pace of rate hikes signals an earlier end to tightening or a lower peak rate. Dovish signals could be associated by the market with a slowing of the December rate hike by as little as 50 basis points.

In a note to clients, Chris Weston, head of research at Pepperstone, wrote :

In the Fed’s view, putting the U.S. into a recession is still a lesser evil than not tackling entrenched price pressures.

It seems highly unlikely that the Fed will want to promote a positive reaction in risky assets, and the risks to markets in my mind are skewed to a hawkish reaction – equity up, bond yields and the USD lower.

Therefore, Powell will likely push back on the “pivot” narrative at the FOMC by hinting at a higher peak rate. Presumably, Powell will also want to play for time.

Quite crucial could be the next CPI data, which will be released on November 10 and the U.S. unemployment rate for October which will be released on November 4. If the Consumer Price Index (CPI ) declines, this could be a sign that Powell’s policy is working and simply needs time. With the U.S. jobs market continuing to look relatively strong, Powell may have that time.

Job opening numbers came in extremely strong.

The beatings will continue. https://t.co/Fr2O1FPbka

— Dylan LeClair (@DylanLeClair_) November 1, 2022

Edward Moya, senior analyst at OANDA told CNBC:

The labor market is going to cool, it’s just not happening as quickly as people thought and that should keep the Fed’s path to slowing rate hikes in place – it might not be in December, but it probably will be at that February meeting.

What Are The Scenarios Emerging For The Bitcoin And Crypto?

To predict a possible reaction of the Bitcoin and crypto market, it helps to look at the past performance of Fed rate hikes. Historically, the BTC price has been excessively volatile before and after the announcement.

During the last rate hike in September, BTC dropped 5% within minutes and then showed a surprising rebound.

The implications for the US dollar in particular will be crucial. In 2022, Bitcoin is showing a strong inverse correlation with the dollar index (DXY). When the DXY rises, Bitcoin falls and vice versa. The Bitcoin rally last week was triggered by the dollar index (DXY) showing weakness and taking a big hit.

However, after falling to 109 points last Wednesday, the DXY rallied to as high as 111.689 points. This Wednesday morning, the DXY exhibited some weakness in the face of the FED decision and slipped from its one-week high against the major currencies again.

DXY shows weakness ahead of the FOMC meeting. Source: TradingView

At the same time, gold was up more than 1% on Tuesday as the U.S. dollar showed early signs of weakness. Bitcoin could follow this lead.

So what to expect today?

Simply put, there are two scenarios for Bitcoin and crypto today. If the FED continues to be hawkish, shows no sign of slowing the pace of rate hikes, and also fails to put a lower peak rate into play, the Bitcoin price is at risk of slipping below $20,000 again.

However, if the FED makes comments about a “pivot”, even if only by hinting at slowing the pace of rate hikes, then the start of a new rally could be in the cards.

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