• The Federal Reserve meeting this week could have a bearish effect on Bitcoin, as a hawkish stance on inflation, growth, interest rates, and quantitative tightening could strengthen the US dollar.
• All eyes are on the Fed’s view on inflation, growth, future interest rates, and quantitative tightening to see what impact it will have on Bitcoin.
• If the Fed expresses a hawkish stance, it could trigger a sharp move higher in the US dollar, resulting in Bitcoin giving up some of its gains this year.
The Federal Reserve meeting this week is an important one for investors, as it could have a significant impact on the US dollar and, in turn, Bitcoin. With the US dollar making strong gains against other fiat currencies so far in January, investors are anticipating what the FOMC (Federal Open Market Committee) will have to say about inflation, growth, future interest rates, and quantitative tightening.
Inflation Outlook
The Fed has committed to bringing inflation to its 2% target, and if the FOMC states that inflation is embedded and upside risks remain, it would be seen as hawkish for the US dollar. This would result in the market betting that the Fed sees ongoing rate hikes as appropriate.
Growth Outlook
The current currency stance is that a sustained period of below-trend growth is likely. However, if the Fed changes its view and sees recession required to have a material impact on the inflation outlook, that would also trigger a sharp move higher in the US dollar.
Interest Rates
Ultimately, it is the interest rate level that will decide the fate of the US dollar. If the Fed decides to keep the current rate unchanged or even raise it, it would be seen as hawkish and lead to a stronger US dollar.
Quantitative Tightening
The Fed has also been gradually reducing its balance sheet since 2018, but if they decide to increase the speed of quantitative tightening, it would be seen as hawkish and could trigger a sharp move higher in the US dollar.
Conclusion
The Federal Reserve meeting this week will be an important one for investors, as it could have a significant impact on the US dollar and, in turn, Bitcoin. If the Fed expresses a hawkish stance, it could trigger a sharp move higher in the US dollar, resulting in Bitcoin giving up some of its gains this year. Investors should keep a close eye on the FOMC’s view on inflation, growth, future interest rates, and quantitative tightening to get a better sense of the direction the US dollar and Bitcoin will take.