Bitcoin soared to its highest level in a month on Monday, extending its rally following last week’s major rate cut by the U.S. Federal Reserve. Meanwhile, the Japanese yen continued its downward trajectory, as a national holiday thinned market activity in Japan.
The dollar strengthened against the yen after policy meetings in both the United States and Japan last week, reaching its highest in two weeks at 144.50 yen. By Monday, the dollar traded at 144.16 yen, maintaining its firm position.
The Bank of Japan (BOJ) kept interest rates steady last week, indicating no urgency to raise them. This pause came just days after the Federal Reserve’s decision to implement a significant 50 basis points (bps) rate cut, which put an end to the yen’s sharp gains earlier in the month. Despite the recent dip, the yen remains up 1.4% for September.
With Japan closed for Autumnal Equinox Day, trading on Monday was largely driven by speculation surrounding future Federal Reserve rate cuts and the resulting boost in equities, commodity currencies, and other risk assets.
Bitcoin saw a 1.8% increase, climbing to $63,954 and hovering near its highest point in a month. Ether also followed suit, rising 3% to $2,660.30, a high not seen since late August.
Chris Weston, head of research at Pepperstone, highlighted the macroeconomic conditions contributing to Bitcoin’s surge. “For now, this is a rally that is there for chasing. As we’ve seen over the years, when Bitcoin goes on a run, the trends can be powerful, and FOMO can really get the crypto players fired up,” he said, referencing the “fear of missing out” that often drives speculative trading in the cryptocurrency market.
The U.S. dollar index, which measures the greenback’s strength against six major global currencies, stood at 100.75, maintaining its position above the one-year low it reached last week. The euro remained flat at $1.1165.
Elsewhere, the Australian dollar rose by 0.4%, trading at $0.68355, a continued reflection of its steady climb over the past two weeks. The currency has gained more than 3% during this period, buoyed by investor optimism and favourable market conditions.
In the broader context, Goldman Sachs provided a more tempered outlook for the U.S. dollar in the coming months. In a note, the bank stated, “The Fed’s rate cut appears to have calmed market fears of a U.S. recession.” The firm’s G10 FX team expects the dollar to experience a modest rebound in the next three months before easing again over a six- to twelve-month timeframe.
Looking ahead, Federal Reserve futures traders have priced in an additional 75 basis points in rate cuts by the end of 2024, with expectations of nearly 200 bps in total cuts by the end of 2025. If these projections hold, the Fed’s policy rate could fall to 2.75% by the close of next year, according to data from CME FedWatch.
This combination of Federal Reserve actions, market sentiment, and the ongoing shifts in global currencies is expected to fuel continued volatility across the cryptocurrency space and broader financial markets. Investors are now closely watching for further developments in both the crypto and forex arenas as 2024 progresses.
