Bitcoin Hits $106K Before Retreating as Hawkish Fed Rate Cut Looms
Bitcoin (BTC) surged to a record high of over $106,000 in early Asian trading hours, before pulling back to $104,500 amid growing speculation around the U.S. Federal Reserve’s upcoming rate decision.
The Fed is expected to announce a 25 basis point cut, lowering the benchmark interest rate to a range of 4.25%-4.5%. This marks a continuation of the Fed’s easing policy, which has seen the rate drop by 100 basis points since September. However, the market is bracing for a “hawkish” message accompanying the rate cut, with hints that further easing may not occur as aggressively in 2024. This has raised concerns that a more cautious approach from the Fed could dampen the enthusiasm for risk assets, including Bitcoin.
“The risk of a ‘hawkish’ cut looms, as the Fed may signal fewer rate cuts next year, recognizing a stronger-than-expected economy and persistent inflation,” said Marc Chandler, Chief Market Strategist at Bannockburn Global Forex. “If the Fed downgrades its rate-cut projections, the U.S. dollar and Treasury yields could rise, which may exert downward pressure on assets like BTC.”
The Fed’s upcoming decision, expected on Dec. 18, will be accompanied by the dot plot, which outlines future interest rate projections, and economic forecasts. A press conference by Fed Chair Jerome Powell will follow.
Despite concerns over a potential shift in the Fed’s stance, Bitcoin’s positive seasonal trends and macroeconomic support, including easing policies from China, remain factors that could help the cryptocurrency weather any temporary pullbacks. Additionally, with President-elect Trump offering positive regulatory signals for crypto, investor sentiment remains optimistic.
“The global central bank rate-cut cycle and rising liquidity, especially from China, will continue to support Bitcoin’s bullish outlook,” said analysts at LondonCryptoClub. “The hawkish Fed cut may cause short-term volatility, but it won’t diminish the long-term growth prospects.”
Market participants will also keep a close eye on the upcoming core PCE data, the Fed’s preferred inflation gauge, which will provide further insight into the direction of inflation and its impact on future monetary policy.
As Bitcoin’s price fluctuates in response to these developments, the broader trend remains favorable for continued growth, as liquidity and global economic factors continue to support the digital asset market.
