Crypto Market Cautious Ahead of Powell Speech: Impact on Bitcoin and Investor Sentiment

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The crypto market has been cautious as attention shifts to an upcoming speech by Federal Reserve Chair Jerome Powell, following hawkish comments from other central bank officials earlier this week. Bitcoin remained relatively stable, registering just below $27,000 after dropping 2% on Thursday. With the exception of Ripple’s XRP, other major coins experienced moderate losses.

In traditional financial markets, the dollar index shrunk from a two-month high, while the Nasdaq index suggested a flat open. Treasury yields increased alongside growing prospects of the Fed presenting another 25 basis point interest rate rise next month, causing risk appetite among investors to stay subdued.

Bitcoin has recently shown a pattern disconnecting from the Nasdaq and correlating with gold, which often moves inversely with bond yields. Previously, market confidence was high that the Fed would halt its liquidity-tightening cycle and move towards rate cuts later this year. Nonetheless, this optimism was disrupted following statements from St Louis Fed President James Bullard endorsing higher interest rates, and Dallas Fed President Lorie Logan asserting that current data does not warrant pausing the tightening cycle.

The hawkish sentiments from Federal Reserve officials and the first decrease in continuing unemployment claims in two months triggered a rise in US rates and a 37% likelihood of a June rate hike, according to Bannockburn Global Forex’s chief market strategist, Marc Chandler. The odds have almost tripled in the past week.

Hopes for a potential US debt ceiling agreement were dampened after reports surfaced that a group of Republican hardliners may block the deal unless it includes significant spending cuts. The US reached its $31.4 trillion debt ceiling earlier this year, prompting the Treasury to apply extraordinary measures to keep the government running. President Joe Biden, however, expressed faith that the government will avert an unprecedented and possibly catastrophic default.

Expectations are high for a hawkish address from Powell, which would likely maintain the market’s risk-averse sentiment at the end of the week. LaDucTrading’s macro advisor, Craig Shapiro, suggests that Powell may need to raise rate hike odds to be prepared for another rate increase in June if short-term resolutions are finalised regarding the debt ceiling issue.

Earlier in the month, the Federal Reserve executed its 10th consecutive rate hike, with Powell retaining a data-dependent policy stance during his post-meeting press conference.

Source: Coindesk

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