BTCUSD consolidates amid ‘higher for longer’ outlook after Powell’s speech

August 28, 2023 06:58 PM AEST | By Invezz

BTCUSD consolidates amid ‘higher for longer’ outlook after Powell’s speech — Image source: Invezz

US economy maintains a strong performance

While the United States economy maintains a strong performance, with an approximate annualized growth rate of nearly 6%, as indicated by the latest Atlanta Fed estimate, this is not the case for its major competitors, particularly the Eurozone and China.

Even before Powell’s keynote speech at the annual Kansas City Fed gathering of policymakers from the US and around the world, the US dollar had already reached a two-month high against a range of major currencies. This is the most possible reason as to why the BTCUSD has seen a considerable decline since August 15.

Bitcoin has been struggling to keep afloat after sliding below $26,000. The cryptocurrency, which is the most traded by crypto traders now seems to be entering into consolidation in readiness for the next course of action.

And while some investors believe that Bitcoin has hit it bottom and it could be preparing for a major comeback, the strengthening US dollar poses a threat. Bitcoin has always been known to benefit from the US dollar’s weaknesses; any gains for the dollar spell doom to the cryptocurrency.

In recent weeks, short-term yield spreads, which often influence exchange rates, have been widening in favour of the dollar compared to several major currencies such as the euro, pound, yen, and yuan.

It’s important to approach market movements with caution, especially on days prone to knee-jerk reactions due to significant data or policy events. However, the absence of a pullback on Friday is noteworthy.

Impact of Powell’s speech

Summarizing Powell’s speech into a couple of sentences, it could be encapsulated as follows: “We will proceed cautiously as we decide whether to continue tightening or maintain the policy rate and wait for additional data.”

This situation seems advantageous for the dollar in the near future, possibly extending into the year’s end. The market has yet to fully price in further tightening of US rates, so another quarter-point increase could bolster the dollar.

While the dollar has risen by 5% in the past six weeks, a pause or a dip for profit-taking would not be surprising. Nevertheless, considering the cushion provided by US yields, it shouldn’t be long before the dollar resumes its upward trajectory.

The post BTCUSD consolidates amid ‘higher for longer’ outlook after Powell’s speech appeared first on Invezz.

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