Bitcoin trading is under pressure due to currency markets pricing in the prospects of an upbeat U.S. Nonfarm payrolls release. This could increase concerns about an early unwinding stimulus by Federal Reserve.
At press time, the most popular cryptocurrency is trading at $33,000 – down 1% from earlier this week when it faced rejections above $36,000 The retreat has ended the optimism that was generated by last week’s rebound, which saw it rise from $28,800 up to $35,000.
Just before press time, the dollar index, which measures the value of the greenback against major currencies, hit a three-month peak of 92.60.
TradingView data shows that the index has been increasing since June 16, when unexpectedly the Fed moved the date for the first interest rate hike to 2023. It has risen 100 pips in the past week, according to TradingView data.
According to the London-based spread-betting and FX provider City Index, the DXY’s recent rise suggests a strong payrolls figure.
According to payroll data, which will be released at 12:30 UTC Friday, it is expected that the U.S. economy added 700,000. This is an increase of 559,000 jobs in May. According to FXStreet, the unemployment rate has dropped to 5.7% from 5.8%. Wage growth may have slowed, however.
A higher-than-expected number could be a validation of the Fed’s recent hawkish turn. This may bring more pain to Bitcoin and other asset values in general.
Fed tightening is a higher interest rate or the unwinding liquidity-boosting asset purchase purchases. This makes the dollar less attractive and reduces the appeal inflation hedges such as gold and bitcoin. Bitcoin and other risk assets are affected by fears of Fed taper, or the gradual unwinding stimulus. The cryptocurrency could also see a strong offer if payrolls data fall short of estimates by a large margin, thereby reducing Fed taper fears.
Bitcoin fell to $30,000 in May, after the U.S. reported an increase in inflation. Investors should consider the possibility that the central bank may close the liquidity tap sooner than they expected.
The central bank stimulus had helped the cryptocurrency climb from $10,000 to $60,000 in just seven months. To help markets and the economy absorb shocks from the coronavirus pandemic, the Fed began to pump unprecedented liquidity into the system in March 2020.
We can see that bitcoin’s price movements over the past 12 month are closely linked to central bank’s money printing.
The crypto market indicators paint a mixed picture before the event. The sliding put-call open rate ratio gives bullish hints. However, low active user participation on blockchain signals weak demand.