- The Federal Reserve meeting scheduled on Wednesday may be hawkish for the greenback
- Bitcoin would possibly hand over a few of its 2023 positive factors on a hawkish Fed
- All eyes are on the Fed’s view on inflation, progress, future rates of interest, and quantitative tightening
The Federal Reserve’s financial coverage choice is scheduled this week. It is the first time the FOMC (Federal Open Market Committee) meets in 2023, and the stakes are excessive for the US greenback.
Bitcoin has strengthened in opposition to the US greenback in January to this point, in sync with different fiat currencies. Therefore, no matter the Fed decides on Wednesday will have an effect on Bitcoin value too.
A hawkish Fed may flip up being bearish for Bitcoin. These are the 4 areas the place the Fed may specific its hawkishness: inflation outlook, progress outlook, rates of interest stage, and quantitative tightening.
Inflation outlook
The Fed is dedicated to bringing inflation to its 2% goal. This is why it has raised charges so aggressively, so if the Fed says that inflation is embedded and upside dangers stay, then the US greenback ought to transfer greater.
In this state of affairs, the market will guess that the Fed sees ongoing charge hikes as applicable.
Growth outlook
The forex stance is {that a} sustained interval of below-trend progress is probably going. If the Fed modified its view and sees recession required to have a fabric affect on the inflation outlook, that will additionally set off a pointy transfer greater in the greenback.
Interest charges
Ultimately, it’s all about the rate of interest stage. The funds charge vary has reached 4.25%-4.50%, and all eyes are on what the Fed does and says on Wednesday.
The base case state of affairs is that the Fed will hike by 25bp and says that ongoing rate of interest will increase are applicable. Therefore, something greater than that ought to be bullish for the greenback and bearish for Bitcoin.
For instance, the Fed would possibly hike 50bp. This is a danger going into the meeting, particularly contemplating that inflation is just not backing down as quick as initially thought.
Quantitative tightening
The Fed at present shrinks the steadiness sheet at a tempo of $95 billion/month. A call to speed up the steadiness sheet discount can be very hawkish for the greenback.
