Bitcoin And Crypto Ahead Of The Fed Hike Announcement

Today’s Federal Reserve (Fed) FOMC meeting could decide the fate of crypto and Bitcoin for the coming weeks and months. NewsBTC reports that global financial markets are holding on to every word of the Federal Reserve in order to forecast future policy.

There is no doubt at the moment that the FED will increase the interest rate by 75bps (bps), which would mark the fourth consecutive rise. The futures market will be divided for December and January’s next meeting.

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. The market currently assumes that there is a 50% chance of rate increases of 75 basis points by December.

Dovish Or Hawkish?

Jerome Powell, the Chair of Federal Reserve will likely not indicate that a slowdown of rate rises means that tightening has halted earlier or the peak rate is lower. The market could associate Dovish signals with a slower December rate increase by 50 basis points.

Chris Weston (head of Pepperstone’s research) wrote this note to his clients:

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. Powell may also be interested in playing for time.

The next CPI data will be available on November 10, and the U.S. employment rate for October will be published 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. Powell might have the time to make a difference, as Powell’s U.S. job market continues to be strong.

CNBC spoke with Edward Moya from OANDA, a senior analyst.

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.

Which are the most likely scenarios for Bitcoin and Crypto?

You can predict the reaction to Bitcoin and the crypto market by looking at past Fed rate hikes. The BTC price was historically volatile both before and after announcements.

BTC plunged 5% in just minutes during the September rate increase, and it then experienced a remarkable rebound.

It will be important to consider the implications of this for the US dollar. Bitcoin’s inverse correlation to the DXY (dollar index) is strong in 2022. Bitcoin drops when the DXY is higher and vice versa. Bitcoin’s rally of last week was due to the DXY (dollar index) falling and taking a huge hit.

After falling to 109 point last Wednesday, however, the DXY rebounded and reached 111.689. On Wednesday morning the DXY suffered some weakness after the FED decision. It fell from its week-high against the major currencies once again.

DXY TradingView
DXY shows weakness before the FOMC meeting. Source: TradingView

Gold was also up by more than 1% Tuesday, as early indicators of weakness in the U.S. Dollar meant that gold had risen over 1%. Bitcoin may follow suit.

What can we expect from today’s situation?

Two scenarios exist for Bitcoin and cryptocurrency today. Bitcoin prices could fall below $20,000 once again if the FED is hawkish.

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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