US Dollar Index Falls to Early Jan. Low-Level Despite Federal Reserve’s Hint at ‘Tapering’
In the crypto market, things are going green after a sea of red. However, things got a little shaky in the macro world as the Federal Reserve hinted at a possible “tapering.”
Before ending up high, the stock market reacted negatively to this. Gold is slowly making its way upwards towards $1,900 per ounce, as some Fed officials argue for the central bank to have a path towards curtailing its ultra-loose monetary policy if the economic recovery continues to accelerate further.
The US dollar rose to nearly 90.3 level before going down yet again. Today, the US dollar index fell to 89.65, a level not seen since early January.
Historically, a falling USD has been bullish for Bitcoin prices.
According to the minutes of the Federal Open Market Committee (FOMC)’s meeting in late April, while some said the US economy remained “far” from its goals of full employment and price stability as such needs very loose monetary policy, others believed that time might soon come for the Fed to change its stance.
“A number of participants suggested that if the economy continued to make rapid progress toward the committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases.”
Currently, the Fed is buying $120 billion of Treasury securities and agency mortgage-backed securities each month, which is vowed to be continued at this pace until “substantial further progress” has been seen in inflation and employment targets.
When it comes to inflation, the Fed remains in favor of letting it run to its 2% target. The “surge in demand as the economy reopens further” would make consumer price inflation run “somewhat above” 2%, but “after the transitory effects of these factors fade, participants generally expected measured inflation to ease,” according to the minutes.
And yet again, the Fed said it would likely be “some time” until the economy makes substantial progress.
As such, “The timing of such communications would depend on the evolution of the economy and the pace of progress toward the committee’s goals,” it said.
Yields jumped higher as US government bonds got sold-off. Yield on U.S. 10 Year Treasury went from 1.62% to 1.692% before going back to 1.632%.
“They don’t publish this stuff without knowing that this has an impact,” said Kathy Jones, chief fixed-income strategist at Charles Schwab.
“It is the first hint, but it will be a gradual process. All the language is conditional. They are leaving themselves a lot of flexibility.”
The meeting happened before the latest payroll/earnings numbers came, which were much less than expected. However, if the next jobs report data comes strong, the market may start expecting the discussion around tapering.
This is expected to have an impact on the traditional markets and also on Bitcoin, which continues to gain adoption. As we saw in March 2020, the crypto market is not exactly unaffected by the macro disturbances either.
“Virtually every coin, company, and product in crypto is at least indirectly fueled by central-bank-induced speculative fervor. So long as this is the case, we are highly vulnerable to central bankers' decisions,” said Qiao Wang of DeFi Alliance.