Signs of a steady rise in the price of Bitcoin (BTC) emerged earlier this week as investors pulled back from the US dollar due to weaker-than-expected economic data.
In particular, Bitcoin’s drop below $33,000 in the past week was met with a healthy buying sentiment, which pushed the price per token to $39,300 on February 1. As of Thursday, the price of BTC fell below $37,000 but was still above the local low of 13%.
Meanwhile, the US Dollar Index (DXY), which measures the dollar’s strength against a basket of the most important foreign currencies, rose to 97441 last Friday, its best level since July 2020. However, the index corrected about 1.50%. to over 96.00 by Feb. 3.
Daily chart of DXY vs BTC/USD. Source: Trading View
Some market analysts saw the dollar’s renewed weakness as a sign of easing concerns about rising interest rates.
For example, Lyn Alden, founder of Lyn Alden Investment Strategy, tweeted that the US Federal Reserve “hit a fever last week when it came to creating more and more severe austerity scenarios,” noting that the central bank could turn into an “economic slowdown.” . Weak PMI data plays a central role. ”
US manufacturing activity, employment decline
Alden cited US manufacturing growth, which fell for the third consecutive month in January 2022, according to data released Tuesday. In particular, the Institute for Supply Management’s manufacturing activity index reached 57.60, the worst level since November 2020, compared to 58.80. a. A month ago.
Data on production growth in the United States. Source: ISM, Bloomberg.
In addition, data from the ADP Research Institute released on Wednesday also showed cracks in the ongoing US economic recovery, showing that employment of regional firms fell by 301,000 in December 2021, the highest level since the early days of the COVID-19 pandemic.
The data came in less than expected a week after Federal Reserve Chairman Jerome Powell’s press conference. Pick up rumors of a tripling of interest rates in 2022 to stem rising inflation in the United States.
Powell’s hawkish reversal has sent the bitcoin price lower as the US dollar strengthened.
Currently, US interest rate futures are pointing to four to five rate hikes in 2022. James Bullard, St. Louis Fed President, expressed concerns about further “tightening”, saying earlier this week that The five increments “were not that bad.”
However, his hawkish comments coincided with a bitcoin market rally with a slowing dollar, leading Alden and other analysts to argue that the market may have overreacted to Powell’s tightening of his expectations.
Federal Reserve officials are now cautiously hawkish
One of the main factors motivating the Federal Reserve’s plans to raise interest rates has been the steady improvement in the US labor market. But due to lower than expected ADP numbers, the central bank may return to austerity plans.
“They went from almost talking and little to 100% gossip,” said Preston Beech, founder of the Pylon Holding Company.
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Some Fed officials also indicated that the central bank may not continue to raise interest rates as aggressively as expected.
For example, Kansas City Fed President Esther George said that “unexpected adjustments” would not be in anyone’s interest. Similarly, San Francisco Fed President Mary Daly warned against tightening too quickly.
As of now, the Federal Reserve CME forecasts a 94.40% chance of a 25 basis point rate hike in March 2022.
“They will increase, but not as much as the future curve suggests,” wrote Teddy Vale, founder of Pervalle Global, a New York-based hedge fund, adding:
“Pricing the digital asset space in the worst case.”
As a result, the history that drove bitcoin’s price to a new one-week low in several months appears to be cracking.