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.