(Kitco News) – Bitcoin’s (BTC) price slipped back below $60,000 in early trading on Wednesday ahead of the highly anticipated interest rate cut decision from the Federal Reserve, with traders waiting with bated breath to see whether the central bank will cut by 25 or 50 bps.
“The crypto market has gained 2.1% in the last 24 hours to reach $2.08 trillion,” noted Alex Kuptsikevich, senior market analyst at FxPro. “The rise in the stock market has brought buyers back to Bitcoin, which has positively impacted cryptocurrencies. The sentiment index is still in the fear zone, but at 45, it is already close to neutral territory. This shows that it is lagging stocks where sentiment has shifted to 'greed.’”
After spiking to a high of $61,413 on Tuesday, BTC has fallen below $59,800 ahead of the FOMC meeting, and traders have limited their exposure to the markets to avoid any potential price volatility that could result from a ‘sell the news’ reaction from the markets.
BTC/USD Chart by TradingView
“Despite some pullback, Bitcoin has broken above its 50-day moving average, suggesting significant upside potential,” Kuptsikevich said. “However, it isn't easy to rely on today's technical picture ahead of the Fed's interest rate decision on Wednesday evening. The next important level is likely to be around the $64K, where the late August high and the 200-day average are located.”
On Tuesday, the latest retail sales numbers came in slightly above expectations, but that is unlikely to affect the interest rate decision much, according to Brian Dixon, CEO of OTC Capital.
“I think the retail sales number coming in a little better than expected won’t change the likelihood that the Federal Reserve will cut rates,” Dixon said. “Rate cuts indeed are basically baked in now – it’s basically now just a matter of whether those cuts will be 50 basis points or 25. I suspect that these numbers will add pressure for the Fed to cut only by 25 basis points, as the economy is still somewhat strong but clearly showing signs of slowing.”
“I think the overall data picture shows that the Fed is probably thinking that it might be better to gradually taper down rates rather than initiate cuts in a big way,” he added. “Obviously, even as inflation has eased, there’s certainly concern that it could return if overall monetary loosening takes place in a fashion that is too big and too fast. So, in short, I think these numbers increase the odds of a 25 basis-point cut. But, again, it’s clear the Fed is almost certain to cut.”
Tuesday saw stocks open higher, with the Dow and S&P 500 hitting new intra-day records, but the major indices ultimately finished the day flat, highlighting the indecision by traders ahead of the rate cut announcement.
“The fact that the majors ended relatively flat was a measure of the uncertainty felt by traders ahead of this evening’s Federal Reserve rate announcement,” said David Morrison, senior market analyst at Trade Nation. “The CME’s FedWatch Tool currently has the probability of a 50 basis point (bps) hike at 61% [now 59%], with 39% [41%] for 25 bps. This is a significant swing from this time last week when the likelihood of a 25 bps cut stood at 87%. Comments from former New York Fed chief Bill Dudley, who expressed strong support for the larger cut, seem to be the main reason for the change.”
“But there are plenty of analysts warning that a 50 bps cut is unnecessary given the current economic backdrop and future outlook,” he noted. “Unemployment may have ticked higher, with the last reading coming in at 4.2%. But it had stood near historically low levels as recently as August last year, at 3.5%. And the Fed had repeatedly cited tightness in the labour market as a reason not to reduce monetary policy due to the danger of wage increases adding to inflationary pressures. There is additional evidence for a slowdown in economic growth, but nothing that points to a hard landing, let alone a recession.”
“So, the fear is that a 50 bps cut tonight will send the wrong message, which could ultimately lead to a sell-off in risk,” Morrison warned.
“On the other side of the argument, the yield on 2-year Treasury notes has fallen from 5% in June to around 3.5% now,” he highlighted. “While this has helped the 2-year, 10-year strip of the yield curve un-invert, it is also telling the Fed to get a move on. But even this is suggesting a far more measured approach than that implied by the FedWatch Tool which is suggesting rate cuts of up to 125 bps before year-end.”
Morrison reiterated that Tuesday’s better-than-expected readings on Headline Retail Sales, Capacity Utilisation, and Industrial Production “provided more reasons for the Fed to stick with the smaller cut,” adding that “there are other global indicators.”
“Oil prices remain depressed, thanks in large part to China’s property crisis and resulting economic slowdown,” he said. “China is also responsible for a glut of steel thanks to overproduction hitting reduced demand.”
“Could factors like these persuade the Fed, having kept rates at multi-decade highs for a record period, that a deep cut is now required?” he questioned. “We’ll know soon enough. Whatever the decision, along with the FOMC’s quarterly outlook and Jerome Powell’s press conference, we should expect some dramatic market swings.”
At the time of writing, Bitcoin trades at $59,422, a decrease of 2.67% on the 24-hour chart.
