In a surprising turn of events, the latest U.S. employment data has significantly shifted market expectations for the Federal Reserve’s monetary policy, potentially influencing the cryptocurrency landscape.
What Happened: Fresh figures show weaker-than-anticipated payroll growth, prompting a dramatic increase in the probability of a substantial rate cut by September.
According to market data, the likelihood of a 50 basis point cut in September has surged from 22% to 71.5%, reflecting growing concerns about economic stability.
This shift has sparked intense debate among financial experts about the implications for various asset classes, including cryptocurrencies.
Economist Alex Krüger highlighted the nuanced impact of potential rate cuts, stating, “One cut ‘good’ (goldilocks), two cuts ‘bad’ (Fed’s hand forced).”
He noted that the poor payroll data has led to a decline in stocks, particularly small caps, due to recession fears.
Interestingly, Krüger observed that Bitcoin is currently trading in line with gold rather than following traditional risk assets.
Offering a more cautious perspective on the Federal Reserve’s likely approach, Ruslan Lienkha, chief of markets at YouHodler said that while the market anticipates a higher probability of a 50 basis point cut, it is too early to draw definitive conclusions about the Fed’s decision in September; more data is required.
He emphasized that the Fed’s decisions are based on multiple factors, not just employment data.
Lienkha also pointed out that inflation remains the primary factor influencing the Fed’s decisions.
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Given recent inflation trends in Europe and their correlation with U.S. inflation, he anticipates a more gradual approach from U.S. authorities, possibly favoring a 25-basis-point cut over a more aggressive 50-basis-point reduction.
Regarding the potential impact on cryptocurrencies, particularly Bitcoin BTC/USD, Lienkha outlined two possible scenarios. In a robust economic environment with low recession risk, he foresees capital inflows into equity markets, risk assets, and cryptocurrencies, potentially boosting Bitcoin’s price.
However, if economic data weakens, investors might seek to lock in current rates in the bond market, potentially leading to declines in both equity and cryptocurrency markets.
What’s Next: These evolving dynamics are set to be a focal point at Benzinga’s Future of Digital Assets event on Nov. 19.
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