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Today’s Federal Reserve (Fed) FOMC meeting could decide the fate of crypto and Bitcoin for the weeks and months to come. As NewsBTC has it reported in recent weeks, financial markets around the world have latched onto every word of the Federal Reserve in predicting future policies.

Currently, there is little doubt that the FED will raise the interest rate by 75 basis points (bp) today, which would be the fourth consecutive hike. However, for the upcoming meetings in December and January, the futures market is divided.

To that extent, today’s session will focus on the signals the FED is sending regarding a possible slowing in the pace of rate hikes. Currently, the market is pricing in a 50% chance of a 75 basis point rate hike in December.

Hawkish or Dovish?

As in previous meetings, Jerome Powell, Chairman of the Federal Reserve, is unlikely to want to signal that a slowdown in the pace of rate hikes signals an earlier end to the tightening or a lower peak rate. Dovish signals could be associated by the market with a slowdown in the December rate hike of as little as 50 basis points.

In a note to clients, Chris Weston, research manager at Pepperstone, wrote:

According to the Fed, plunging the United States into a recession is always a lesser evil than failing to address entrenched price pressures.

It seems highly unlikely that the Fed wants to promote a positive risk asset reaction, and the risks to the markets in my mind are skewed towards a hawkish reaction – stocks up, bond yields and the dollar down.

Therefore, Powell will likely push back on the “pivot” narrative at the FOMC by hinting at a higher peak rate. Presumably, Powell will also want to save time.

The next CPI data, which will be released on November 10, and the US unemployment rate for October, which will be released on November 4, could be quite crucial. If the consumer price index (CPI) declines, it could be a sign that Powell’s policy is working and simply needs time. With the US labor market continuing to look relatively strong, Powell may have that time.

Edward Moya, Principal Analyst at OANDA Told CNBC:

The labor market is going to cool down, it’s just not happening as quickly as people thought and it should keep the Fed’s path to slower rate hikes – it may not be in December, but it will probably be at this February meeting.

What are the Emerging Scenarios for Bitcoin and Crypto?

To predict a possible Bitcoin and crypto market reaction, it is useful to look at the past performance of Fed rate hikes. Historically, the price of BTC has been excessively volatile before and after the announcement.

During the last rate hike in September, BTC fell 5% within minutes and then showed a surprising rebound.

The implications for the US dollar in particular will be crucial. In 2022, Bitcoin shows a strong inverse correlation with the dollar index (DXY). When the DXY goes up, Bitcoin goes down and vice versa. The Bitcoin rally last week was triggered by the Dollar Index (DXY) showing weakness and taking a big hit.

However, after falling to 109 points last Wednesday, the DXY has recovered to 111.689 points. On Wednesday morning, the DXY showed some weakness in the face of the FED’s decision and slipped again from its 1-week high against the major currencies.

DXY TradingView
DXY is showing weakness ahead of the FOMC meeting. Source: TradingView

Meanwhile, gold was up more than 1% on Tuesday as the US dollar showed early signs of weakness. Bitcoin could follow this lead.

So what to expect today?

Simply put, there are two scenarios for bitcoin and crypto today. If the FED continues to be hawkish, shows no signs of slowing the pace of rate hikes, and also fails to put a lower peak rate into play, the price of Bitcoin is at risk of falling back below 20,000. $.

However, if the FED comments on a “pivot,” even hinting at a slowing in the pace of rate hikes, then the start of a new rally could be in the cards.





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