On November 14, 2024, the hawkish speech by Federal Reserve Chairman Jerome Powell caused a sharp reaction in the global market. As US economic data continued to rise, Powell's remarks once again emphasized the Fed's determination to control inflation, and at the same time had a significant impact on market interest rate expectations. US stocks fell slightly, but the cryptocurrency market, especially Bitcoin, fell sharply, and seemed to have lost its recent upward momentum. The US dollar continued to remain strong, reaching a two-year high, and the market's expectations for a December rate cut rose sharply. This series of economic phenomena revealed the game between internal and external forces in the current financial market.
Powell's hawkish stance: no rush to cut interest rates, cautious response to inflation
In a recent speech, Powell made it clear that despite the strong performance of the US economy, the Fed will not rush to lower interest rates. He pointed out that the healthy state of the economy is encouraging, but this does not mean that the Fed will quickly turn to loose policies. In particular, the US producer price index (PPI) continues to perform strongly, indicating that inflationary pressures still exist, which forces the Fed to maintain a tight monetary policy for some time to come.
The latest data from the U.S. Bureau of Labor Statistics showed that PPI rose 2.4% year-on-year in October, exceeding market expectations. This data shows that despite the Fed's consecutive interest rate cuts, inflation has not fallen as quickly as expected. On the contrary, PPI is close to the target inflation range of 2%, suggesting that market price pressures remain. Powell stressed that the Fed will continue to monitor economic data to ensure that inflation remains within an acceptable range, but also warned that future economic fluctuations may bring new challenges to monetary policy.
Against this backdrop, the Fed's policy direction remains uncertain, especially in the face of changes in the global economy and domestic labor market. Although the current economic growth is solid, the threat of high inflation has not completely subsided, and Powell called for caution and to avoid premature monetary easing. This hawkish stance has exacerbated market uneasiness about future interest rate trends, especially the debate over whether interest rates will continue to be cut in December, and market expectations for further rate cuts have quickly risen.
The US dollar rebounded strongly, and the attractiveness of traditional assets increased
Powell's speech not only strengthened the market's expectation that the Fed will continue to tighten monetary policy, but also pushed up the US dollar index. The US dollar index once broke through the 107 mark, reaching its highest point in nearly two years. This strong performance has had a profound impact on the global market, especially on the investment attractiveness of non-US assets.
The appreciation of the US dollar is usually accompanied by expectations of interest rate hikes, and the strength of the US dollar makes other assets denominated in US dollars, such as gold, Bitcoin, and the cryptocurrency market less attractive. When the US dollar index hit a new high in the last round, the Federal Reserve continued to raise interest rates or at least maintained a high interest rate level, and traditional assets (such as US dollars and Treasury bonds) gradually became the preferred choice of investors. In contrast, as an emerging asset class, cryptocurrency's high volatility and risk attributes make it more unstable in an environment of rising interest rates and a strong US dollar.
The strength of the dollar also weakens the appeal of cryptocurrencies such as Bitcoin as safe-haven assets. Investors often see Bitcoin as a tool to fight inflation, but the current hawkish rhetoric of the Federal Reserve and its continued monetary tightening policy have reduced the effectiveness of Bitcoin as an anti-inflation tool, especially when the dollar and U.S. Treasury yields attract capital inflows.
Bitcoin plunges sharply in the short term, market sentiment turns cold
Compared with the strong rebound of the US dollar, the performance of cryptocurrency markets such as Bitcoin appeared weak. Just half an hour after Powell's speech, the price of Bitcoin fell sharply from US$91,846 to US$88,289, and then continued to fall to a minimum of US$86,700, a drop of more than US$5,000, marking the first major correction after setting a record high.
According to Coinglass data, the cryptocurrency market has seen a serious blow-up in the past 24 hours. In the past 24 hours, a total of 182,250 people were blown up, with a total amount of $504 million. The largest single blow-up occurred on Binance - ETHUSDT worth $10.4696 million
The Ethereum exchange rate ETH/BTC fell to 0.0347, hitting a new low since April 2021.
At the same time, XRP (Ripple) has stood out in this wave of market crash, showing unexpectedly strong gains. XRP has soared 16% in the past 24 hours, breaking through the $0.8 price mark and setting its highest level since July 2023.
So what’s driving this surge in XRP? The most likely reason has to do with the potential resignation of Gary Gensler, the current chairman of the U.S. Securities and Exchange Commission (SEC).
Recently, it was reported that Gensler has sent an open letter suggesting that he may resign as SEC Chairman in the near future. Since Donald Trump won the US presidential election last week, rumors about Gensler's resignation have been circulating in the market. Trump has publicly stated that he will fire Gensler if he returns to office, and this statement has intensified the market's expectations of Gensler's resignation.
For XRP, this potential change is undoubtedly a key factor in its surge. Ripple has been fighting a legal battle with the SEC for nearly four years, and it can be said that it has been in opposition since Gensler took office. Gensler's resignation may not only be beneficial to Ripple, but may also have a far-reaching impact on the actions he takes against other cryptocurrency companies during his tenure. If Gensler's successor adopts a more relaxed policy towards the cryptocurrency industry, the market's outlook on XRP may change significantly, which will undoubtedly bring strong upward momentum to the price of XRP.
Expectations for a rate cut in December intensify, and the market faces more uncertainty
With the release of US economic data, market expectations for a rate cut in December have risen sharply, with the probability of a rate cut rising from less than 60% to more than 80%. Although the market is optimistic about the rate cut, the comments of Fed officials show different views. Fed Governor Adrienne Kugler recently said that although the market hopes to see a signal of a rate cut, the Fed should suspend rate cuts if inflation stagnates.
Goldman Sachs also released its forecast for future interest rate trends, believing that the final interest rate level of this round of interest rate cuts may be higher than the traditional neutral interest rate range, and is expected to fall between 3.25% and 3.5%. Even after a round of interest rate cuts, the Fed's interest rate level will remain relatively high, which will undoubtedly put continuous pressure on risky assets including Bitcoin.
Conclusion: The cryptocurrency market faces greater challenges
Overall, Powell's hawkish speech and his cautious attitude towards future monetary policy have increased the attractiveness of the US dollar and traditional assets, while the cryptocurrency market is facing greater adjustment pressure. The short-term decline of Bitcoin and the cooling of market sentiment reveal the fragility of digital assets in the current economic environment. Investors need to pay close attention to the future policy direction of the Federal Reserve, especially whether there will be further interest rate cuts in December and whether the global economy can maintain its growth trend.
