Bitcoin Faces Market Shift as Positive Job Data Alters Fed Rate Cut Expectations

08.01.2024 posted by Admin

Bitcoin's Volatility Amid Shifting Fed Rate Expectations

The recent employment report on Friday is likely to influence the Federal Reserve's future policy decisions, according to an analyst.

On Monday, Bitcoin (BTC) experienced modest losses, particularly as Asian stocks faced a more significant downturn. This decline followed the release of positive U.S. nonfarm payrolls (NFP) data on Friday, which tempered expectations for early interest rate cuts by the Federal Reserve.

As of 4:32 UTC, the primary cryptocurrency, valued at $43,600, saw a 0.8% decrease in CoinDesk's daily data. Across Asia, most stock indices were in negative territory, with Hong Kong's Hang Seng experiencing a 2% drop due to increased regulatory measures in the gaming sector.

The NFP data for December revealed that the U.S. economy added 216,000 jobs, surpassing the anticipated 170,000 and exceeding November's revised figure of 173,000. The unemployment rate remained steady at 3.7%, and average hourly earnings rose by 4.1% year-on-year, surpassing the expected 3.9%.

Since the release of the employment data, there is growing uncertainty about the Federal Reserve's timeline for reducing the Fed funds rate, a key borrowing cost. The CME Fed Watch tool indicates a 60% probability of a rate cut in March, a decrease from the fully anticipated rate cut in late December when the odds were above 75%.

In the swap market, traders are now projecting around five 25 basis point rate cuts this year, compared to the six or seven similar-sized cuts priced in before the employment report, as reported by FT.

The 10-year Treasury yield, considered the risk-free rate, has increased by 15 basis points to 4.05% since Friday. This suggests traders are reevaluating their expectations of a dovish Federal Reserve or the likelihood of a delayed rate cut by the central bank. The benchmark yield had fallen nearly 80 basis points to 3.86% in the last quarter of 2023, benefiting risk assets, including bitcoin.

Greg Magadini, director of derivatives at Amberdata, highlighted the noteworthy aspect of the rise in wage gains, reaching +4.1% year-over-year (Y/Y), significantly surpassing current inflation rates. Magadini suggested that historically, persistent wage-price spirals tend to be crucial elements in inflation psychology, prompting the Federal Reserve to maintain flexibility in its future policy decisions.

While the continuous increase in yields poses a downside risk to risk assets, the anticipation of the U.S. spot ETF launch may provide some support for bitcoin against adverse movements in the bond market. Analysts widely expect the U.S. Securities and Exchange Commission to approve one or more spot ETFs by January 10, with some warning of a potential "sell the fact" price drop after the approval, as this development has already been factored into the market over the past three months.
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