It is reported that the United States will release the May CPI data and the interest rate decision of the Federal Open Market Committee (FOMC) in succession, which will have a significant impact on the entire cryptocurrency market. The U.S. Department of Labor will release the May Consumer Price Index (CPI) at 20:30 Beijing time on June 12 tonight, and the Federal Reserve will announce the latest interest rate decision at 2:30 am on June 13 Beijing time, followed by a press conference by Federal Reserve Chairman Powell. Since 2014, the above events have only occurred on the same day seven times.
UBS economist Jonathan Pingle joked that this day "packed months of macro risks into one day." In line with Wall Street's overall expectations, he expects the U.S. May CPI data, coupled with last week's unexpectedly strong non-farm payrolls data and other recently released economic data, to lead the Federal Reserve to adjust its outlook for inflation, economic growth and interest rates.
The current market sentiment is generally cautious. Bitcoin has recently experienced a pullback before the FOMC meeting many times, but it will rebound quickly after the interest rate decision is released. So some people speculate that this is a typical "temporary drop before bad news, and a rapid rebound after good news." Because from a historical perspective, Bitcoin prices often experience a certain degree of pullback before the Fed's interest rate decision is announced. This is mainly due to investors' "de-risking" operations out of caution before the release of major economic data and policies. For example, at the beginning of 2024, Bitcoin experienced a sharp pullback before the January FOMC meeting, falling from $67,000 to $62,000, a drop of more than 7%. But after the interest rate decision was announced, it rebounded quickly and eventually stood at $68,000.
Analysts pointed out that Bitcoin has recently reacted strongly to economic data, and its correlation with U.S. stocks in the past 30 days has reached its highest level since 2022. Therefore, the announcement of this interest rate decision will trigger more drastic market fluctuations. Investors will pay close attention to the "interest rate expectation dot plot" updated by the FOMC, which can reflect the expectations of Federal Reserve officials on the timing and number of interest rate cuts this year.
According to the speech after the May FOMC meeting, Chairman Powell said that the Fed must see two conditions before it has the confidence to cut interest rates: inflation indicators close to the 2% target, or unexpected signs of weakness in the labor market. However, these two conditions have not yet been fully met, so the market generally expects that the Fed will keep interest rates unchanged at this meeting.
What is more noteworthy about this meeting is the Fed's adjustment of economic and inflation expectations, as well as the guidance of the "dot plot" on the future interest rate path. Investors expect that economic forecasts will be adjusted accordingly due to the impact of the May CPI data, that is, inflation expectations will be raised but economic growth expectations will be lowered. As for the future interest rate path, the market currently generally expects the Fed to adjust the previously implied "three interest rate cuts" to "two interest rate cuts." Different analysis agencies also have different forecasts on the specific number of interest rate cuts. Goldman Sachs expects two, Citigroup expects three, and Bank of America expects only one.
In addition, the ECB's rate cut last week attracted the attention of some US politicians. Several Democratic senators wrote to Chairman Powell, saying that the Fed should follow the ECB's move to avoid the excessive US-European interest rate gap pushing up the dollar and tightening US financial conditions. They believe that the Fed has kept interest rates at a high level for too long and it is time to start cutting interest rates.
In general, the market has a large difference in judgment on the Fed's future monetary policy, and investors will pay close attention to this meeting and its subsequent statements. Looking forward to tonight's heavy data and resolutions, investors generally believe that the following situations will occur:
The CPI data is higher than expected, and the Fed maintains a high interest rate hike. This will lead to a sell-off of risky assets, and Bitcoin may continue to decline in the short term. However, the long-term upward trend of Bitcoin will not change, and it may be a good opportunity to buy at a low price.
CPI is in line with expectations, and the Fed hinted that interest rates may be cut in the future. In this case, Bitcoin may have a good opportunity to rebound and is expected to hit the $70,000 mark again.
CPI is lower than expected, and the Fed announces a rate cut. Bitcoin is expected to rise explosively, and it is very likely to break through the historical high.
According to past experience, the Federal Reserve usually chooses to cut interest rates to stimulate the economy when faced with high inflation and weak economic growth. In the second half of 2023, US economic growth has slowed significantly and inflationary pressure remains high. This may push the Federal Reserve to announce the start of a rate cut cycle as soon as possible. Once the Federal Reserve starts cutting interest rates, it will create a good investment environment for the cryptocurrency market.
Previous data shows that Bitcoin usually sees a sharp rise during interest rate cuts. From June 2019 to March 2020, the Federal Reserve cut interest rates three times in a row, and Bitcoin rose from $6,000 to $10,000 during this period. In the second half of 2023, Bitcoin also climbed from $18,000 to $25,000.
In general, investors can seize the opportunity of the current Bitcoin pullback and increase their positions appropriately. After the FOMC meeting ends and the Fed starts the interest rate cut cycle, Bitcoin prices may usher in a new round of surges. This undoubtedly provides investors with a good opportunity to "buy at the bottom", which is worth paying attention to and participating in.
Although the short-term price of Bitcoin may fluctuate due to macro factors, the overall trend will remain upward. Some analysts believe that if Bitcoin can stabilize in the range of $65,000-67,000, it can be regarded as a good buying opportunity. Of course, this does not mean that the future trend of Bitcoin will be smooth sailing. As the current macroeconomic environment is still full of uncertainty, the price of Bitcoin may still experience a certain degree of volatility.
Investors must pay attention to risk management when operating. You can adopt the strategy of building positions in batches when the market is low, appropriately control the size of positions, and guard against potential downside risks. At the same time, adjust investment plans in a timely manner according to important news such as tonight's CPI data and the Fed's resolution. In general, although Bitcoin may face certain adjustments in the short term, it still has good investment value in the medium and long term. Maintaining patience and determination and adhering to the concept of long-term investment may be the most reliable way to invest.
