Crypto in Pain As Markets Fear What Fed Chair Has To Say This Week About Inflation

Crypto and other risk-on assets are feeling pain thanks to the current “risk-off” mood that has resulted in the U.S. Dollar Index (DXY) surging to highs not seen in over two decades; and nervousness about what Fed Chair Jerome Powell might say this week is not helping.

Bitcoin is rebounding in the Asian session after suffering a sharp selloff as global markets turn risk off as the Fed reiterates its resolve to keep raising interest rates until inflation is contained https://t.co/qgwW4miUMX pic.twitter.com/9MuErgc3dd

— Bloomberg TV (@BloombergTV) August 22, 2022

According to Wikipedia, the U.S. Dollar Index” (DXY)—which is designed, maintained, and published by ICE (Intercontinental Exchange, Inc.)—is an index (or measure) of the value of the United States dollar relative to a basket of foreign currencies. These other currencies are EUR, GBP, JPY, CAD, SEK, and CHF.

According to data by MarketWatch, in the past five-day period, DXY has gone from around 106.48 to 109, which isthe highest it has been since June 2002.

Source: MarketWatch

Now, look at how the S&P 500 has behaved during the same period:

Source: Google Finance

Although DXY and risk-on assets such as stocks and cryptocurrencies are not always negatively correlated, they seem to be most of the time since when there is fear/panic in global markets — e.g. because there is concern that the Fed might hike interest rates — investors tend to run to U.S. treasury bonds, which are considered very low risk.

U.S. stocks are struggling today, with all four major U.S. stock indices in the red (as of 4:40 p.m. UTC on August 22):

Source: CNBC

Crypto has also been struggling during the past few days. For example, since last Monday (August 15), the Bitcoin price has gone down from $25,033 to $21,358 (as of 4:13 p.m. UTC on August 22), which is a drop of 14.68%.

Source: TradingView (One-Month BTC-USD Chart)

The main macro factor behind the jitteriness felt by global markets is the concern that Fed Chair Powell might sound quite hawkish, which could suggest that in September the Fed will increase interest rates by at least 0.75% in an attempt to control raging inflation in the U.S.

The 2022 Economic Policy Symposium, “Reassessing Constraints on the Economy and Policy,” is being held August 25-27 in Jackson Hole, Wyoming. This annual symposium is hosted by the Federal Reserve Bank of Kansas City. Fed Chair Powell is one of the attendees.

Robert Cantwell, portfolio manager at Upholdings, told CNBC:

“When you see the market right now dropping down like this, this is the market saying the Fed has to be more aggressive to slow the economy down further if they want to bring inflation back down.“

Here is what two popular analysts are saying about the crypto market in general and Bitcoin in particular:

The glimmer of hope for risk assets this week is the $DXY approaching a significant area between 108.70 and 109.30.

Potential for some USD weakness here, which could mean temporary relief for #stocks and #crypto.

Cue the calls for a DXY double top, which won’t age well, IMO. pic.twitter.com/lpVnDKvGwB

— Justin Bennett (@JustinBennettFX) August 22, 2022

$BTC Has not managed to hold the Weekly 200MA for another week, closing back below it.

Still hanging around the level but if the bulls want to turn this back around they got to get back above that ~$23K area. https://t.co/r8L1yKE9o7 pic.twitter.com/KGAiUsV4lB

— Daan Crypto Trades (@DaanCrypto) August 22, 2022

Source