Bitcoin Displays Aggressive Movements as FED Approaches Interest Rate Decision

• Bitcoin (BTC) traders are exhibiting an aggressive stance ahead of the US Federal Reserve meeting on Wednesday.
• The Federal Open Market Committee (FOMC) will announce its interest rate decision on Wednesday at 9 pm. Then, at 9:30 pm, Chairman Jerome Powell will speak at a press conference.
• Fed fund futures show that interest rate traders expect the central bank to keep its interest rate steady in the current range of 5-5.25 percent.

The US Federal Reserve (FED) will announce its interest rate decision today at 9 pm. What are the expectations for the interest rate decision?

FED Will Announce Interest Rate Decision Today

Bitcoin (BTC) traders are exhibiting an aggressive stance ahead of the US Federal Reserve meeting on Wednesday. While the central bank is expected to keep its interest rates unchanged, some observers expect it to take a step that they call a “hawkish pause” by leaving the door open for future increases.

The Federal Open Market Committee (FOMC) will announce its interest rate decision on Wednesday at 9 pm. Then, at 9:30 pm, Chairman Jerome Powell will speak at a press conference.

Fed fund futures show that interest rate traders expect the central bank to keep its interest rate steady in the current range of 5-5.25 percent. The sharp cycle of interest rate hikes, which has increased by 500 basis points (5 percent) since March 2022, destabilized risky assets including cryptocurrencies last year.

However, the central bank is expected to signal its potential to continue tightening in the coming months. As of writing, Fed fund futures show that the probability of the Fed raising rates by 25 basis points in July is slightly over 50 percent. Implied rate cuts towards the end of the year have been priced in from the future rate curve.

According to option risk reversal data tracked by Singapore-based crypto trading giant QCP Capital, bearish bets on Bitcoin are trading more expensively than bullish calls ahead of the Fed meeting. The bearish trend indicates a sense of concern in the market.

In an update published by QCP Capital’s market insights team on Tuesday, they said, “We think the risk for the FOMC meeting is for a hawkish pause – implying that a pause occurs at this meeting but that the average interest rate is revised upwards to show a continued upward trend.”

Inflation in the US Falls to 4%

The US Annual Inflation (CPI) fell to 4 percent in May, below the current Fed fund interest rate. According to QCP, this has created room for the Fed to keep interest rates steady at Wednesday’s meeting.

However, both CPI and the core PCE, the inflation measure preferred by the Fed, are at 4.7 percent, above the central bank’s long-standing inflation target of 2 percent. This leaves less room for the Fed to end its tightening cycle.

In addition, interest rates that are compatible with positive inflation generally put pressure on assets such as gold and Bitcoin.

Historically, some crypto traders have looked at post-Fed movements in US stock markets to plan their strategies. However, this strategy may not work this time due to the weakening correlation between Bitcoin and the S&P 500 and Nasdaq stock indices in recent times.

Joshua Olszewicz, research chief at alternative asset management firm Valkyrie Investment, said in a weekly market review published on Monday, “The Fed’s decision to skip a rate hike may be celebrated by equity bulls who trust the economy that has taken the S&P 500 to new annual highs. Bitcoin and Ethereum did not benefit from the risky asset environment in recent weeks, which may be a sign of concern about upcoming regulatory actions.”