Bitcoin (BTC) staged a weak recovery on September 21, and the US dollar jumped to new highs as investors awaited today’s Federal Open Market Committee interest rate decision.
The price of BTC before the Fed’s decision is 19 thousand dollars
BTC price managed to hold on to $19,000, with a modest daily gain of 1.33%. Meanwhile, the U.S. dollar index (DXY), which measures greenback strength and major foreign exchange pools, rose to 110.86, its highest level in two decades.
FOMC rate hike conditions
The Federal Reserve is set to discuss how much it can raise benchmark lending rates to curb record inflation. Interestingly, the market expects the US central bank to raise rates by 75 or 100 basis points (bps).
A move to higher interest rates could lower appetite for riskier assets like stocks and cryptocurrencies. Conversely, the US dollar serves as a safe haven for investors who shy away from riskier assets.
“There seems to be no reason to soften the tone of the recent Jackson Hole Symposium and the 2018 [0.75 percentage point] Analysts at ING told the Financial Times that a ‘hawkish rally’ should keep the dollar close to year’s highs.
Independent market analyst PostyXBT argues that a rate of 100 bps could “knock” Bitcoin below its current technical support of $18,800. It also suggests that BTC has a good chance of recovery if the rate increase is below expectations or 50 bps.
$BTC 1 d
As we FOMC experts know, today is a big day!
Is 100bps nuclear support for good?
50bps maybe prime the pump and give the bulls some breathing room?It will be a very interesting daily close https://t.co/C5ClM436N6 pic.twitter.com/mJP7qpGEv1
– Posts (@PostyXBT) September 21, 2022
These estimates echo expectations of overall price increases. John Kicklighter, chief strategist at DailyFX, notes that a 50 bps increase would be huge for the benchmark US stock market index.
However, a 100 bps increase would be extremely bearish for the S&P 500. This could also be problematic for Bitcoin, whose correlation has been consistently positive since December 2021.
Polls expect a rate hike of 75 bps.
The US economy has experienced two back-to-back negative growth. Additionally, the manufacturing PMI showed the slowest growth in factory activity since July 2020. Meanwhile, 2-year US Treasury yields are crossing the yield curve above 10-year US Treasury yields.
Related: What’s in store for Bitcoin and the crypto market now that the Ethereum merger is over?
These metrics raise alarm about an impending recession. But offsetting those low unemployment data and housing start rates are still more than $1.35 million above the danger zone, according to data provided by Capriol Investments founder Charles Edwards.
Typically, warnings of a recession would prompt the Fed to tighten its grip. In other words, to slow or pause walk rates. But Edwards said the U.S. economy is not technically in recession, so the central bank won’t act.
“Until the core issues of the recession are addressed, until the most important area is affected — jobs — there is no reason to expect an urgent change in federal policy here,” he wrote.
“So until we have evidence that inflation is under control, it’s business as usual.”
A majority of economists, or 44 of 72 polled by Reuters, also forecast the Fed will hike by 75 bps at its September meeting. Therefore, Bitcoin could avoid a deep correction if it continues its correlation with the S&P 500 according to Kicklighter’s view.
Next Bitcoin to $14K?
From a technical perspective, Bitcoin’s fall below the current support level to $18,800 in 2022 could lead to a “head and shoulders” breakout to $14,000.
Conversely, a retracement from the $18,800-support could have BTC’s price eyeing the $22,500 interim target, or a 16.5% upside from today’s price.
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