Jobs Data, Hawkish Fed Comments Trigger a Crypto Market Decline

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Bitcoin (BTC) and Ethereum (ETH) have encountered downward pressure as economic data appears to weigh on investor sentiment.

Initial Jobless Claims Influence Crypto Market Sentiment

The release of initial jobless claims on Thursday morning at 8:30 AM ET showed that 242,000 Americans filed for unemployment benefits, a decrease of 22,000 compared to the previous week’s reading of 264,000. It was also 12,000 lower than the consensus estimate of 254,000.

The initial jobless claims that fall below anticipated levels is expected to exert a negative impact on various asset prices across the board, encompassing cryptocurrency valuations as well.

This outcome can be attributed to its potential effect of shrinking the probability of the U.S. Federal Reserve halting its extensive sequence of interest rate increases during the upcoming June gathering of the Federal Open Market Committee (FOMC).

The FOMC has consistently shared its stance that more relaxed labour market conditions are essential prerequisites for the implementation of reduced interest rates in the future. As a result, the significance of lower jobless claims extends beyond their immediate economic implications, having implications for market dynamics and monetary policy decisions.

Dallas Federal Reserve President Lorie Logan further supported this view when she stated later on Thursday that the current data points do not yet warrant a pause in interest rate hikes. Logan noted that the continued strength of the labour market appears to contribute to high inflation.

Following the release of the new jobs data, both Bitcoin and Ethereum experienced a modest decline in prices, accompanied by higher-than-expected trading volume. This suggests that investors are reacting to the economic data and adjusting their positions accordingly.

U.S. Debt Deal Talks and the Potential Impact on Crypto as a Safe Haven

Market attention has shifted to the prospects of a potential U.S. debt deal between Democrats and Republicans as the country approaches its $31.4 trillion debt limit. Failing to increase the debt limit would have detrimental effects on the U.S. economy and risk assets. However, some Bitcoin proponents argue that reduced confidence in the United States’ ability to pay its debts could enhance the perception of crypto as a more reliable currency option.

Notably, Noelle Acheson highlighted in her “Crypto is Macro Now” blog that while default would have negative consequences, it could potentially be beneficial for Bitcoin and gold as alternatives to fiat currency. President Joe Biden and Republican House Leader Kevin McCarthy have expressed confidence that a deal will be reached soon, which has provided some relief to the markets.

McCarthy’s optimistic comments regarding the debt deal made during the morning session on Thursday seemed to fuel a surge in market sentiment, reflected in the hourly chart of Bitcoin. Notably, the chart displayed an extended trading range as the cryptocurrency rallied to reach $27,400. However, crypto markets turned decidedly lower in the afternoon, with Bitcoin tumbling to close to a one-month low at $26,580 on high trading volume. The market’s reaction indicates the uncertainty surrounding the ongoing debt negotiations and the potential impact on both the economy and risk assets.

While the negotiations continue, the market’s response emphasizes the significant role that macroeconomic factors, such as debt deals, play in shaping the dynamics of the crypto market.

Gold Prices Slide Amid Dollar Strength and Hawkish Fed Remarks

Cryptocurrencies aren’t the only asset class affected by the hawkish remarks from the Feds. Gold prices too experienced a decline on Wednesday as the dollar strengthened following statements made by officials from the US Federal Reserve, which raised uncertainties regarding potential interest rate reductions within this year.

Around 4:40 p.m. UTC, spot gold witnessed a 0.3% decrease, reaching $1,981.95 per ounce, after having dropped below the $2,000 mark during the previous session. Similarly, US gold futures declined by 0.4% to $1,985.60 per ounce.

Simultaneously, the US dollar index achieved a six-week high, diminishing the allure of bullion as it competes with the currency as a safe haven, particularly among international buyers.

Jim Wyckoff, a senior analyst at Kitco Metals, noted that the dollar’s surge, partly driven by the generally “hawkish” stance of Fed officials, has been negatively affecting the metals market. Wyckoff added that while a US debt default could have a positive impact on gold, the majority of the market does not believe such an event is likely to occur.

Highlighting the central bank’s commitment to controlling inflation, Chicago Fed President Austan Goolsbee emphasized that it is “far too early to discuss rate cuts.” Likewise, Cleveland Fed President Loretta Mester stated that interest rates have not yet reached a level where the bank can maintain stability.

A Reuters poll predicted that the Fed would maintain steady rates throughout this year. Traders are currently estimating a roughly 75% probability that the Fed will maintain rates in June, with cuts expected in the latter half of the year, according to Fed Fund Futures.

UBS analyst Giovanni Staunovo mentioned that although they anticipate higher prices over the next 12 months, with a projected gold price of $2,200 per ounce, the next price increase is likely to occur when the Fed adopts a more dovish stance. By reaching its lowest level since April 27, spot gold fell by 0.3% to $1,981.39 per ounce. US gold futures settled at $1,984.90, reflecting a decrease of 0.4%.

While a US debt default could be beneficial for gold, the majority of the market does not share this belief. US President Joe Biden and top congressional Republican Kevin McCarthy expressed their determination to reach a debt ceiling agreement soon. Traders have priced in a roughly 67% likelihood of the Fed maintaining rates in June, with cuts still anticipated in the second half of the year.

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