This first week of May is very busy in fundamental terms with the new rate hikes by the FED and the ECB and the publication of the NFP report in the United States on Friday. As a result of the increased likelihood of a US recession, the market has priced in a FED pivot from this summer 2023. What impact can be expected on Bitcoin (BTC) price trend?
The Federal Reserve could “cheat” over the summer
The Federal Reserve of the United States (FED) released a new monetary policy decision on Wednesday evening and a press conference for its president Jerome Powell. As expected by the consensus of financial analysts, the Fed increased its main rate by 25 bps to reach the rate of 5.25%, breaking the record for the year 2007!
Jérôme Powell argued that inflation (especially core inflation) was far from defeated and that monetary policy could remain restrictive for many more months.
Surprisingly, the market seems to no longer believe the Fed and is now anticipating a downward inversion of the Fed interest rate cycle. It is clear that this is called a downward pivot in the rates of nutrition. According to the CME FED WATCH TOOL (see table below), the market expects that the FED’s terminal rate has now been reached and that the latter should make its pivot during the summer; in fact the price of futures contracts traded on the Chicago stock exchange is a teaching on the fed funds interest rate.
Such a case of ending restrictive monetary policy is clearly a fundamental support factor for so-called risky assets in the stock market, especially the equity market and the crypto market.
How can that optimism in market expectations be explained against the official rhetoric of the FED?
Firstly, the likelihood of a US recession is increasing with the growing difficulties of US regional banks, and above all the market’s conviction that deflation will continue (especially the recent fall in the price of oil).
We still have to be careful, because the Fed will not ease as long as core inflation remains at a high level.
A table taken from the CME FED WATCH TOOL of the Chicago Stock Exchange, which describes the probabilities of the evolution of the interest rate cycle of the United States Federal Reserve (FED)
The trend of Bitcoin (BTC) is still strongly influenced by the trend of the interest rate pair / US dollar
Now let’s take a bit of foresight and imagine that the market’s expectations are correct. In this prospective scenario, the FED would therefore begin a downward trend in its interest rates from the end of next summer, acting below market interest rates and the dynamics of the US dollar against a basket of major currencies.
The chart below reminds you of the strong inverse correlation between Bitcoin and the US dollar/interest rate pair, so if the market expectations are true, it would be a big help for the crypto market to continue its bullish recovery initiated at the beginning of the year.
Finally, on the chart level, the uptrend of the year is still active as long as the price of Bitcoin preserves the support of 25,000 dollars.
Graph showing bitcoin price in Japanese weekly candles (arithmetic scale) with US interest rates and US dollar trend in Forex
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