Bitcoin experienced a sudden sell-off as Jerome Powell vowed to keep monetary policy loose even as the US economy shows growth and inflation begins to rise.
The Federal Reserve chief said during the Wall Street Journal Jobs Summit his office expects to stay “patient” in limiting support for the recovery, given that the labor market remains far from the central bank’s maximum employment goals.
“We have the tools to assure that longer-run inflation expectations are well-anchored at 2 percent. Not materially above or below. And we’ll use those tools to achieve that,” he said.
Bond Fears Persist
Mr. Powell’s dovish tone failed to subside investors’ fears that the Fed responds too slowly to a recent uptick in the US government bond yields. The chairman said that he’d be “concerned by disorderly conditions” in the Treasury markets or by “a persistent tightening in financial conditions” that affects their asset purchasing program.
Bitcoin fell by almost 4 percent during Mr. Powell’s speech alongside the US stocks and kept falling after it was concluded. Again, their drop coincided with a dramatic spike in the 10-year US Treasury yield that hit an intraday high of 1.54 percent after rising 6 basis points.
Powell did not deliver. Basically repeated his usual dovish lines, acknowledged treasury market is disorderly, yet indicated would not act on it yet – leading to continuation on the dollar up, bonds down, stocks down trends. $BTC dropped almost 4% on his speech.
— Alex Krüger (@krugermacro) March 4, 2021
The sell-off in government bonds, Bitcoin, and the stock market showed that investors are bracing for stronger-than-expected inflation, partially because of a speedier vaccination rollout that could reopen economies, combined with an additional fiscal package in the US.
Bitcoin Trade Outlook
Padhraic Garvey, global head of debt and rates strategy at ING, noted that Mr. Powell’s comments left bond yields with upside potential. That could prove bearish for Bitcoin as the prospect of earning higher interest rates in the US may increase the appeal of the US dollar in the short-term.
The cryptocurrency broke below its 50-4h simple moving average (the blue wave) after Mr. Powell’s speech, hinting at an extended correction towards its 200-4h simple moving average (the orange wave). That currently sits around $46,000.
Conversely, an upside attempt from here could have the price retest $50,000 in the short-term, with its primary upside target above $52,000.