Fed's Next Move is a Rate Cut"...Bitcoin (BTC), Will a Bull Market Revive if the Dollar Weakens?

▲ Bitcoin (BTC), Dollar (USD)

As Bitcoin (BTC) recorded its strongest weekly surge since March, weakening US inflation expectations are simultaneously shaking concerns about the Federal Reserve's interest rate hikes and the strong dollar, bolstering the bullish sentiment.

According to FXStreet, a cryptocurrency specialized media outlet, on July 6 (local time), Bitcoin rose by about 7% in the week leading up to July 5, marking its best weekly performance since March. As the cryptocurrency market regained stability, a decline in inflation breakeven rates, which indicate future inflation expectations, emerged as a factor supporting Bitcoin's strength.

The 2-year inflation breakeven rate has fallen below the Federal Reserve's (Fed) inflation target of 2%, and long-term breakeven rates have also significantly declined in recent weeks. Both the 2-year breakeven rate and West Texas Intermediate (WTI) crude oil prices have retreated to levels seen before the start of the Iran war in late February. Doubts are growing in the market about whether inflation concerns, the Fed's interest rate hike outlook, and the strong dollar can persist.

Another variable is the excessive concentration of bullish bets on the dollar. If long positions are suddenly liquidated, the US Dollar Index (DXY) could come under pressure, and the market is focusing on July 14, when the US June Consumer Price Index will be released, as an inflection point. Robin Brooks, a senior fellow at the Brookings Institution and former chief economist at the Institute of International Finance, stated, "It's time to remind everyone that disinflationary pressures, starting with falling oil prices, mean the Fed won't raise rates, and if there's a next move, it could even be a cut."

If doubts are raised about the dollar's strength, the barriers preventing further upside for Bitcoin could also weaken. Bitcoin and the dollar are known to have an inverse correlation. However, YCC Macro pointed out, "The Fed cannot declare victory simply because gasoline prices have fallen," adding, "Persistent inflation in the services sector is why policymakers are likely to keep interest rates higher for longer, even if headline CPI continues to moderate."

YCC Macro stated, "Markets betting on aggressive monetary easing may be underestimating the persistence of underlying inflation." With Bitcoin recording its best weekly performance since March, the US Consumer Price Index on July 14 has emerged as a key indicator where arguments for slowing inflation and prolonged high interest rates will directly clash.

[Article Summary]

-Bitcoin rose by about 7% in the week leading up to July 5, marking its best weekly performance since March.

-The 2-year inflation breakeven rate fell below 2%, raising questions about the Fed's interest rate hike outlook and the strong dollar.

-The market is focusing on the US June Consumer Price Index on July 14 as a key indicator that will differentiate between slowing inflation arguments and prolonged high interest rate arguments.

*Disclaimer: This article is for investment reference only, and we are not responsible for any investment losses based on it. The content should be interpreted for informational purposes only.*