Bitcoin correction continues while equities interpret new Fed-speak

Cryptocurrencies dipped and equities traded sideways Friday after conflicting statements from the Federal Reserve confused traders about what comes next.

New York Federal Reserve President John Williams on Friday presented a different narrative from the one investors ran with on Wednesday. Williams pushed back on the notion that rate cuts are imminent, an expectation the market has been riding since Fed Chairman Jerome Powell’s Wednesday press conference.

“We aren’t really talking about rate cuts right now,” he said during a CNBC interview Friday morning. “It’s just premature to be even thinking about that.”

The comments appear to contradict the Fed’s earlier statement that peak rates have likely been achieved, leaving markets to anticipate a round of rate cuts in 2024.

The S&P 500 traded sideways midway through Friday’s session while the Nasdaq Composite managed to clock moderate gains of 0.4%.

The Dow Jones Industrial Average, which surged to a record high after the Fed’s Federal Open Markets Committee meeting, was also flat.

While equities digested the different statements from the central bank, the dollar moved into a mild recovery after a sharp decline Wednesday. Although if we do see rate cuts in the first quarter of 2024, analysts say the dollar is due for another correction.

“If markets are interpreting the Fed’s statements this week correctly and US rates do start to come down within the next few months, funds are likely to flow out of dollars into other currencies,” Noelle Acheson, author of the “Crypto is Macro Now” newsletter, said. “We’re already starting to see this — in the 24 hours following Wednesday’s FOMC statement, the DXY index dropped around 2%.”

Bitcoin (BTC) and ether (ETH) fell around 3% each Friday afternoon, extending the correction that started this week. According to analyst sentiment, this was an expected development.

Both cryptos are down about 5% since Monday, but still on track to end the year well into the green, with bitcoin and ether currently up 151% and 87%, respectively, year-to-date.

“Sentiment in the crypto market had begun to turn overly bullish, which was met by a flash crash…earlier this week,” analysts from Cycles Edge wrote in a note Friday. “Crypto fear and greed index is showing elevated levels of greed. While this is not a timing tool in and of itself, it does suggest that the current run requires some cooling off soon.”

Looking ahead, traders will have an eye on next week’s core Personal Consumer Expenditures index release.

As the Fed opted to lower its 2024 core PCE to 2.4%, which is still above the central bank’s 2% target, but a major decline from the 3.46% year-over-year increase reported last month.

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