Bitcoin (BTC) heads into the end of July juggling volatility catalysts as the Federal Reserve reacts to US inflation.
Key points:
- The Fed will deliver its latest decision on interest rates as US bond yields spike, with markets seeing a September hike as likely.
- June PCE inflation is due on Thursday after hitting a three-year high of 4.1% last month
- Signs of a shift in the equities uptrend places the focus on Bitcoin’s macro correlation.
- Whales exchange inflows cool by 44% since June
Markets remain split on rate outlook
Attention turns once more to the US Federal Reserve this week, with the Federal Open Market Committee (FOMC), chaired by Kevin Warsh, set to announce its latest interest rate decision on Wednesday, July 29.
A combination of geopolitical tensions and persistent inflation pressures has reshaped expectations for Fed policy and put the possibility of further rate hikes back on the table as the US 2-year Treasury yield climbed to 4.3% last week. The latest data from the CME Group’s FedWatch Tool currently sees a 31% chance of a hike this week, with a hike at the September meeting having odds as high as 50%.
Fed target rate probabilities (screenshot). Source: CME Group
These rate hike expectations were tempered slightly as oil prices dropped 8% in the early hours of Monday as the US and Iran paused strikes. Rate hike odds therefore shifted from 37.4% to 33.7%. Ongoing developments in the Middle East thus continue to introduce volatility into the macroeconomic outlook, even as PPI inflation data released earlier in the month came in below expectations.
Fed target rate probability comparison for July FOMC meeting (screenshot). Source: CME Group
Commenting, trading resource Mosaic Asset Company also noted a pending upward breakout in 30-year bonds. Although the long end of the bond curve now plays a diminished role in funding the US government, this could notionally add to pressure on Warsh as he shapes his language at the post-FOMC press conference.
“The 30-year Treasury yield is also testing a key breakout level once again. In May, the 30-year yield saw a false break above the 5% level which has served as resistance since late 2023,” it summarized in the latest edition of its regular newsletter, The Market Mosaic.
US 30-year bond-yield data. Source: Mosaic Asset Company
Even before the latest turmoil, new Fed chair Warsh had steered clear of dovish language on the economy and kept his post-FOMC statement and press conference notably brief.
“Inflation remains elevated relative to the Committee’s 2 percent goal, in part reflecting supply shocks that have driven price increases in certain sectors, including energy,” he said at the time.
PCE inflation seen falling from three-year high
Beyond the FOMC, markets will be watching the Personal Consumption Expenditures (PCE) index on Thursday for fresh signals over the impact of the US-Iran war on inflation trends. The June print of the index, currently sits at three-year highs.
PCE volatility can have a snap impact on risk-asset performance as traders reprice potential Fed reactions. June’s release coincided with Bitcoin dropping to macro lows around $58,000.
Prefacing its latest analysis, the International Monetary Economics Network (IMEN) predicted that PCE would be moderately lower compared to May’s 4.1% year-on-year tally. “U.S. inflation: We currently expect June PCE inflation to be 3.7% year‑over‑year,” it wrote on X.
US PCE inflation data (screenshot). Source: Bureau of Economic Analysis
Correlation between Bitcoin and equities remains absent
On higher timeframes, correlations between Bitcoin and major equity indices have largely disappeared. Data from TradingView currently puts the daily correlation between BTC/USD and the S&P 500 with a 20-week loopback window as practically absent, at its lowest levels since March. Against the tech-heavy Nasdaq Composite Index, meanwhile, its current correlation coefficient of 0.11 was last observed in mid-February. While correlations on the weekly timeframe move slowly, bearish geopolitical and macro events have the potential to make the two asset classes move in lockstep again.
BTC/USD one-week chart with rolling 20-week stocks correlation. Source: Cointelegraph/TradingView
For now, corporate earnings in the US have continued to surpass expectations. However, given the historically high valuations, this is unlikely to shield the market from potential pullbacks. Several major US tech stocks saw significant drawdowns last week. The Magnificent 7 falling by an aggregate 5.3% through Friday after $GOOGL and $TSLA had already suffered sell-offs earlier in the week.
In spite of this, “Alphabet, $GOOGL , is the single largest margin contributor after significantly beating earnings estimates,” the Kobeissi Letter commented on the topic at the weekend.
“Meanwhile, 86% of reporting S&P 500 firms have so far beaten EPS estimates, while 80% have exceeded revenue expectations. AI is driving historic earnings…
cointelegraph.com