Fed, US economic data could set tone for crypto market in near term: analysts

The price of Bitcoin surged this month to record highs as investors acclimated to President-elect Donald Trump. But markets are bracing for the Federal Reserve’s minutes on Tuesday, which could give an idea of ​​whether or not the US central bank’s easing campaign will continue.

Earlier this month, the Fed lower your reference interest rate of a quarter of a percentage point, following a oversized fit by half a percentage point in September. Even though the cuts have strengthened so-called risky assets, investors are divided on whether a third reduction is on the cards.

At the time of writing, Fed futures traders saw a 43% chance that the Fed would keep rates steady at its final meeting of the year ending Dec. 18, according to the CME Group FedWatch tool. In other words, the prospects for a December rate cut are relatively uncertain compared to the two previous policy meetings of US central banks that brought good news for crypto.

Lower interest rates generally bode well for risky assets like stocks and cryptocurrencies, as lower borrowing costs make them more attractive compared to payments on investments like cash and bonds. US Treasury. However, analysts said Decrypt that the Fed could take a more cautious approach, depending on how it assesses the uncertainty surrounding Trump’s plan. proposed prices.

Earlier this month, Fed Chairman Jerome Powell said that the central bank’s progress in bringing inflation back to its 2% target has been solid, but “it’s not there yet.” While he expects inflation to continue to ease, he acknowledged that it could be a “sometimes bumpy road.”

With the Fed’s final policy meeting taking place after the election, Tuesday’s meeting minutes “could reveal how the Fed is considering potential policy actions in the wake of Trump’s victory,” the Fed market maker wrote. GSR crypto in a market update.

Meanwhile, market participants will receive a key data point on Wednesday when the U.S. Commerce Department’s Personal Consumption Expenditures (PCE) Price Index is released. Measuring inflation in October, the Fed’s preferred inflation gauge is expected to show a 0.3% price increase that month, after cooling at 2.1% for the financial year ending in September.

According to BRN analyst Valentin Fournier, lower inflation “could strengthen Bitcoin’s momentum and improve its chances of breaking through the strong resistance at $100,000.” In a recent research note, he wrote that PCE expectations still leave “room for a positive surprise, which could strengthen the likelihood of another rate cut this year.”

Meanwhile, QCP analysts have noticed that Bitcoin and Ethereum futures traders are turning to puts rather than calls, favoring bearish bets based on the assets’ implied volatility. Depending on what the Fed meeting minutes and PCE results have in store, this could lead to lower cryptocurrency prices as “the market takes a breather,” they wrote.

“Increasing concerns about downside risks may intensify, particularly with (Tuesday’s) FOMC minutes and Wednesday’s PCE data,” QCP analysts wrote. “The market had become extremely overbought since the election, with excessive leverage making a pause inevitable.”