The US Federal Reserve reignites the flames of bitcoin optimism

Signs of a steady recovery in bitcoin price emerged earlier this week as investors veered away from the US dollar on weaker-than-expected economic data.

In particular, Bitcoin’s drop below $33,000 last week met healthy buying sentiment that propelled the price as high as $39,300 on Feb. 26. As of Thursday, BTC price has fallen below $37,000 but is still 13% above the local bottom.

Meanwhile, the US Dollar Index (DXY – a measure of the greenback’s strength against major currencies) rose to 97.441 last Friday, marking its best level since July 2020. . However, the index corrected nearly 1.5% to around 96 by Feb. 3.

DXY and BBTC daily price chartOLD/USD | Source: TradingView

Some market analysts see the renewed weakness of the dollar as a sign that interest rate fears are easing.

For example Lyn Alden, co-founder of Lyn Alden Investment Strategy, tweets that the US Federal Reserve (Fed) “peaked last week presenting increasingly aggressive tightening scenarios,” noting that the central bank could move to easing because “the economic slowdown/weak PMI data are key issues to be addressed Need to become”.

Factory activity in United States of Americaemployment declined

Alden cited a third consecutive month slowdown in US manufacturing growth in January 2022, according to data released Tuesday 2020 and compared to 58.8 per month earlier.

US manufacturing growth data | Source: ISM

In addition, data from the ADP Research Institute released on Wednesday also showed cracks in the ongoing economic recovery. Specifically, employment in the region’s companies fell by 301,000 in December 2021, the highest level since the beginning of the Covid-19 pandemic.

This lower data was somewhat predictable and came a week after Fed Chair Jerome Powell’s press conference. He forecast three rate hikes through 2022 to curb escalating inflation in the United States.

Powell’s radical turn pushed bitcoin price lower as the US dollar strengthened.

There are currently many signs pointing to a 4x to 5x rate hike in 2022. Earlier this week James Bullard – President of the St. Louis – further voiced concerns about a “tightening” by claiming that five rallies was “a not-so-bad bet”.

However, his hawkish comments coincided with a rally in the bitcoin market as the dollar cooled, leading Alden and other analysts to say the market may be overreacting to the prospect of Powell’s tightening scene.

Fed officials have a vote Eagle disposable Carefully

One of the key catalysts behind the Fed’s rate hike plan is a steady recovery in the US jobs market. But with a lower-than-expected ADP reading, the central bank could roll back its tightening plan.

“They’ve gone from mostly talkative and little action to 100% dishonest,” said Preston Pysh, founder of Pylon Holding Company. notice.

Several Fed officials have also suggested that the central bank may not hike rates as aggressively as expected.

For example, Esther George, President of the Kansas City Fed, said that “unexpected regulatory adjustments” would benefit nobody. Similarly, San Francisco Fed Chair Mary Daly warned against tightening too quickly.

“The Fed is tightening. Relax from here. Impact on the Dollar”, Teddy Vallee tweets.

Currently CME’s Fed Watch Tool suspect 94.4% chance of a 25 basis point rate hike in March 2022. Whether there will be a sustained hike for the rest of 2022 remains unclear.

“You will gain weight, but not as much as the curve ahead suggests. The digital asset space is priced in a worst-case scenario,” said Teddy Vallee, founder of Parvelle Global, a New York-based hedge fund. to write.

To sum up, the narrative that propelled bitcoin price to fresh multi-month lows last week seems to be showing cracks.

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