Source: Sharecast
Fed Chairman Jerome Powell was more hawkish than the market would have liked. The central banker opened the door for the first time to a 50 basis point rate hike by December, while announcing that the final rate of interest rates "will be higher than expected." "It is too premature to think about a pause in rate hikes. We want to make sure we don't loosen our monetary policy too soon," stated Powell, who also acknowledged that the Fed "doesn´t think they have tightened monetary policy too much".
He also pointed out that "the important thing is to see how far rates have to rise and for how long they can remain at restrictive levels", not whether the next rate hike will be 75 or 50 basis points. In this regard, CME's FedWatch tool gives a probability of more than 60% that the next rate hike will be 50 basis points.
Powell's remarks prompted sharp declines in equity markets, with the Nasdaq retreating over 3% and the S&P 500, down over 2%. Cryptocurrencies followed this move closely and also retreated significantly, further deepening the correlation with the stock market that we saw in recent months.
The truth is that, initially, the idea of a slowdown in rate hikes sat well with the 'cryptos', with BTC rising above $20,800, until Powell erased the gains with the stroke of a pen. "The devil was not in the data, but in the language," commented Michael Safai, a partner at trading firm Dexterity Capital. The expert explained, "all eyes will be on next week's US CPI reading" as, "if the data is not as encouraging as the Fed's ambitions, crypto investors could pull back once again."
Craig Erlam, senior market analyst at Oanda, believes Powell's words were a "crushing blow" to 'cryptos' and points to another key figure: employment data. "Whether it can stay above $20,000 will depend on the employment data. Another red-hot report could weigh heavily on risk appetite and send Bitcoin back below $20,000," he explained.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, believes that the language used by Powell is because the Fed chairman "did not want a 'rally' to develop," as "it would go vertically against his goal of curbing inflation in an economy where inflation shows no signs of abating and the labor market is not yet tightening."
All in all, the expert highlighted the strength of 'cryptos', particularly Bitcoin, to "widespread risk selling". "The currency maintains support above the psychological $20,000 mark, and only lost around 1.60% yesterday, on Wednesday, despite a sell-off of more than 3% on the Nasdaq," he stressed, although he acknowledged that "the risk environment remains less than ideal for a bull market to develop."
In the cryptocurrency market, the Binance coin (BNB) rose 4%, after it offered to integrate with Twitter. There were also strong gains of more than 12% for MATIC (Polygon) and an 11% rally for Litecoin (LTC).