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 have been hanging on to the Federal Reserve’s every word to predict future policies.
At present, there is no doubt that the Fed will increase the interest rate by 75 basis points (bps) today, the fourth consecutive increase. However, the futures market is divided for the next meetings to be held in December and January.
To that extent, the focus of today’s session will be on the signals the Fed sends regarding a possible slowdown in the pace of rate hikes. Currently, the market assumes a 50% chance of a rate hike of 75 basis points in December.
Hawkish or dovish?
As in previous meetings, Federal Reserve Chairman Jerome Powell may not want to indicate that the slowdown in rate hike momentum indicates a tightening of the earlier end or a lower peak rate. Dovish signals can be linked to the December rate increase by the market by at least 50 basis points.
In a note to clients, Chris Weston, Head of Research at Pepperstone, wrote,
In the Fed’s view, putting the US in a recession is still a lesser evil than dealing with lower price pressures.
It seems very unlikely that the Fed would want to foster a positive reaction in riskier assets, and to my mind the risk to the markets is skewed for a sharper reaction – equities up, bond yields and USD lower.
Therefore, Powell will return to the “pivot” narrative in the FOMC by hinting at a higher peak rate. Powell will probably also want to play for a while.
The next CPI data, which will be released on November 10, and the US unemployment rate for October which will be released on November 4, could be quite significant. If the Consumer Price Index (CPI) declines, it could be a sign that Powell’s policy is working and just needs time. With the US jobs market looking relatively strong, Powell may have that time.
Job opening numbers came out very strong.
The fighting will continue. https://t.co/Fr2O1FPbka
— Dylan LeClair (@DylanLeClair_) 1 November 2022
OANDA. Edward Moya, Senior Analyst Told CNBC:
The labor market is going to cool, it’s not happening as fast as people thought and that should continue to pave the way for the Fed to slow rate hikes – it might not happen in December, but maybe it’s the February meeting will be in
What are the emerging landscapes for bitcoin and crypto?
To predict the potential reaction of the bitcoin and crypto markets, it helps to look at the past performance of Fed rate hikes. Historically, the price of BTC has been highly volatile before and after the announcement.
During the last rate hike in September, BTC fell 5% in minutes and then showed a surprising rally.
The implications for the US dollar in particular will be significant. In 2022, Bitcoin is showing a strong inverse correlation with the Dollar Index (DXY). When DXY rises, bitcoin falls and vice versa. Last week the bitcoin rally was showing weakness by the Dollar Index (DXY) and was taking a major hit.
However, after falling as low as 109 points last Wednesday, the DXY rose to a high of 111.689 points. This Wednesday morning, the DXY showed some weakness in the face of the Fed’s decision and slipped again from its one-week high against major currencies.
On the other hand, gold rose more than 1% on Tuesday due to early signs of weakness in the US dollar. Bitcoin could follow this uptrend.
So what to expect today?
Simply put, there are two scenarios for bitcoin and crypto today. If the Fed continues bullish, shows no signs of slowing down the pace of rate hikes, and fails to sport a lower peak rate, the price of bitcoin is at risk of falling below $20,000 again.
However, if the Fed makes comments about a “pivot”, even if only by indicating a slowing of the pace of rate hikes, then the start of a new rally could be in the cards.