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Bitcoin Rally Could Halt if Powell Doesn't Signal End of Tightening

"We expect that Chair Powell may shy away from being definitive when it comes to a pause which may disappoint the market," according to one crypto trader. This comes as Bitcoin has experienced a resurgence this year, with prices rising 70% since January 1st.

Jerome Powell
Jerome Powell

Fed Announcement and Market Expectations

The Fed will announce its interest rate decision on Wednesday, with traders expecting the central bank to raise rates one final time to end the tightening cycle. Traders are also pricing in rate cuts starting in July as dovish expectations have strengthened.

Dovish Pivot's Impact on Dollar Index and Bitcoin

Markets have seen a classic risk-on action since October 2022, anticipating a dovish Fed pivot. The dollar index has declined by over 14% since early October, while the Nasdaq index and Bitcoin have rallied 25% and 50% over the same period.

Risks Associated with a Hawkish Fed Stance

Chris Weston, head of research at Pepperstone, voiced a similar opinion on Twitter, warning of risks associated with a hawkish Fed stance. Weston compared the pre-Fed dovish pricing to the Reserve Bank of Australia's recent rate decision, which surprised the Aussie dollar's value.

Bitcoin's Safe-Haven Appeal Amid Banking Turmoil

Weston believes that a post-meeting bounce in yields and the dollar could add to banking sector woes and will likely be short-lived. Bitcoin has performed positively during the recent banking turmoil, strengthening its safe-haven appeal.

U.S. Dollar Unlikely to Rally Despite Powell's Remarks

Some observers do not foresee a sustained dollar rally, despite what Powell says at the post-meeting press conference. Markus Thielen, head of research and strategy at Matrixport, believes that the US dollar is unlikely to rally due to expectations for an eventual dovish pivot by the Fed.