In the past, the Fed has dramatically impacted the world financial markets with its tightening monetary policy to curb inflation in the US economy. It looks like Fed policy has started to work from the falling unemployment rate - the decline in claims shows that the US labor market is still quite strong. This week will have many critical financial events that will lead to substantial market volatility, especially the Fed rate announcement on February 2 - the FOMC meeting and the first rate hike in 2023.
Featured Financial Events
Fed Announces Interest Rates
At 02 a.m. (GMT+7) on February 2, 2023, the Fed will announce interest rates for the first time in 2023. Markets expect another 0.25 percentage point hike by the Federal Reserve (Fed) to 4.5%-4.75%. Following that, the March meeting should be similar, with the Fed expected to hike rates by 0.25 percentage points, while there is some chance the Fed may leave rates stable. Several Fed officials have recently hinted at a slowdown of rises, including Governor Christopher Waller, who stated in a speech to the Council on Foreign Relations on January 20 that he now prefers a 25 basis point increase at the next FOMC meeting.
"Beyond that, we still have a considerable way to go toward our 2% inflation goal, and I expect to support the continued tightening of monetary policy," Governor Christopher Waller said
In the scenario that the Fed raises interest rates by 0.25% in line with market expectations, this will be a good sign for Bitcoin (BTC), and it will also be the lowest rate increase since the continuous rate hike cycle from March. 2022. If the Fed raises interest rates by 0.5%, this will shock the market, and indeed the USD index (DXY) will increase sharply, leading to a profound drop in BTC.
Besides, the US inflation is gradually cooling down, so the Fed's target of raising interest rates for 2023 at around 5%-5.25% is reasonable (currently around 4.25%-4.5%). The Fed will have many meetings similar to 2022 on March-May-June-July-September-November-December, and with the target for this year at 5%-5.25%, it is predicted that there will be Fed meetings with no interest rate increase.
Initial Jobless Claims
At 20:30 (GMT +7), the same day the Fed announced interest rates, the US Department of Labor also announced the application for unemployment benefits. Applications for unemployment benefits are based on the number of people applying for unemployment insurance. Jobless claims are projected to be 200k - 186k higher than previously announced. In case the actual jobless claims are higher than predicted - the DXY index will fall, and BTC will rise. On the contrary, if the actual numbers are lower than expected - the DXY index will increase, and BTC will decrease.
At 8:30 p.m. on February 3, 2023, the US Bureau of Labor Statistics will release the US nonfarm payrolls report by calculating the number of employed workers last month, excluding agriculture. It is predicted that the number of employed workers this month will decrease from 223k to 185k. In case the actual number is higher than the prediction - the DXY index will increase, and BTC will drop. On the contrary, if the actual numbers are lower than predicted - the DXY index will fall, and BTC will rise.
At the same time, the US Bureau of Labor Statistics will also announce the unemployment rate - this is one of the critical indicators to reflect the US labor market. The unemployment rate is expected to increase slightly from 3.5% to 3.6%. In case the actual number is higher than the prediction - the DXY index will decrease, and BTC will increase. On the contrary, if the actual numbers are lower than predicted - the DXY index will increase, and BTC will fall.
Bitcoin And Cryptocurrency Market
Bitcoin is on course for its best January since 2013, as the expectation of fewer Fed rate rises has raised investors' risk appetite. Other cryptocurrencies are recovering as the sector regains its $1 trillion market size. In the last month, Ethereum has increased by 32%. The rise appears to be fuelled by the expectation that the Federal Reserve will ease back on aggressive rate hikes in response to evidence of decreasing inflation.
At the time of writing, BTC is trading around 23k with a 24-hour trading volume of nearly $22.5 billion. BTC has been growing strongly since the beginning of January, and there has been no correction. Therefore, the BTC price may have a correction to the 21k3 - 21k6 price area in order to continue the sustainable growth to the 23k9 - 25k2 area or even 26k7 for the bull to grow to 30k.
Reviews And Summary
This week will be volatile for the financial market in general and the cryptocurrency market in particular with the tight monetary policy from the Fed. However, the US inflation situation has gradually cooled down, so the Fed will not raise interest rates "huge" like last year but will increase slightly or not at the next meetings.
Besides, because the policy of increasing interest rates has eased a lot, it is a good signal and attracts cash flow from investors for risky assets such as Bitcoin, Gold, etc. However, when the Fed raises interest rates, it will more or less affect DXY, so BTC may correct to support areas to continue its growth momentum.
In addition, this week, three crucial financial news will strongly affect the DXY and the Fed's decision to raise interest rates at the following meetings, such as jobless claims, nonfarm payrolls, and unemployment rate. From the metrics for the above news, it's all bad for DXY and good for BTC. As a result, BTC will likely continue to grow towards the key regions at 24k-25k.
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