The US 02-year yield (top chart) has declined, the catalyst being the shutdown of Silicon Valley Bank and Signature Bank, and a general ebb in confidence regarding the banking sector. At the same time bitcoin (bottom chart) has appreciated, benefitting from a perception that the slide in yields represents an end to the Fed's rate hiking cycle.
Bitcoin's rally is largely based on an expectation that the Fed will shift from a tightening policy to possibly cutting rates. According to the CME FedWatch Tool, markets see a potential decline of rates to 4.25% by year-end. In effect, there has been a repricing of rate-hike bets as market participants focus on financial stability risk.
Recent data shows a cooling in the economy and a moderation of inflation, a sign that rate hikes are working. The next data piece is tomorrow's US jobs report for March, which is a key economic indicator. If it comes in weaker-than-expected, bitcoin is likely to be supported.
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.