Simply put
- In January, employment saw an increase of 130,000, which has raised hopes that the U.S. Federal Reserve will keep interest rates steady for now.
- Futures markets have shifted their expectations for rate cuts to the latter half of the year, tightening financial conditions despite some signs that inflationary pressures are easing.
- Bitcoin has been relatively stable after the recent market adjustments, although analysts note that rising yields are dampening risk appetite, even as selling pressure seems to be lessening.
After the strong labor report on Wednesday, showing 130,000 new jobs added in January, investors are closely watching the upcoming delayed inflation report, set to be released this week.
The new U.S. consumer price index data, which was postponed because of the partial government shutdown, is anticipated to drop by 0.2% month-on-month from December and 2.5% from the same time last year.
Derek Lim, who leads research at crypto market builder Caladan, noted that inflation metrics might be “more significant than job statistics.” He continued, stating, “If inflation comes in lower than expected, it could put more pressure on the Fed to cut rates sooner, which would be beneficial for risk assets.”
Historically, when Fed policy rates are lower, it tends to support both stocks and cryptocurrencies during times of abundant liquidity by easing financial conditions, lowering discount rates, and spurring greater risk-taking.
Conversely, if inflation is higher than anticipated, it could prolong high-interest rate environments, which would negatively impact risk assets, according to experts.
Following surprising non-farm payroll data, experts generally agree that the Fed is unlikely to initiate stimulus measures anytime soon. The C.M.E. FedWatch tool indicates a 94.6% likelihood that the Fed will maintain interest rates within a range of 3.50% to 3.75%.
This outlook has dampened market expectations, leading to a drop in broader cryptocurrencies and other risk assets.
“This good news for the economy is essentially turning into bad news for the market,” Tim Sun, a senior research fellow at Hashkey Group, remarked.
He emphasized that after the employment report was released, futures related to interest rates spiked, diminishing the chance of a rate cut and pushing expectations into the latter half of the year.
“Strong employment signals robustness in the economy, which means the Fed has no urgent reason to ease rates,” Sun explained. He also pointed out that while U.S. Treasury yields remain high, funding costs and discount rates are unlikely to decrease quickly, maintaining pressure on risk-laden assets like Bitcoin.
The market appears unstable, though Sun hinted that selling pressure might be dwindling. “Looking at price trends and on-chain distribution, the pace of decline seems to have slowed down,” he stated. “However, we haven’t seen clear signs of a trend reversal yet.”
In the last 24 hours, Bitcoin dipped by 0.5% to $67,200, while Ethereum stayed unchanged at $1,970, according to CoinGecko.
The leading cryptocurrencies have been consolidating between $62,822 and $72,000 throughout the past week, exhibiting relatively muted volatility after the declines seen in late January and early February.
