Bitcoin Faces Pressure as Goldman Revises Fed Rate Cut Predictions

Key Highlights:

Friday's nonfarm payrolls report led banks to reduce expectations on Fed rate cuts.
BofA indicated that the likelihood of an interest rate hike has increased.
Bitcoin (BTC) fell below $93,000 during European trading hours.

Market Overview

Bitcoin started the week negatively as major financial institutions recalibrated their forecasts for Federal Reserve (Fed) rate cuts due to the robust jobs report from last Friday. As a result, BTC experienced a 1.6% decline, dipping below the support level of $93,000, which has been crucial since November.

The broader market indicator, the CoinDesk 20 Index, also saw a decline of over 3%, with significant losses among major cryptocurrencies including XRP, ADA, and DOGE.

In traditional equities, S&P 500 futures saw a 0.3% decrease, continuing a downward trajectory that stemmed from Friday's 1.5% decline, the lowest since November.

The dollar index climbed near 110 for the first time since late 2022, buoyed by rising Treasury yields.

Data from the Jobs Report:
Nonfarm payrolls saw an increase of 256,000 in December, considerably exceeding the 160,000 forecast and the prior month’s 212,000 figure. The unemployment rate decreased to 4.1%, and average hourly earnings were slightly below expectations at a monthly increase of 0.3% and an annual rise of 3.9%.

Consequently, Goldman Sachs has postponed the anticipated interest rate cut to June from March. "Our economists now foresee the Fed instituting only two cuts in 2025 (June and December), versus earlier expectations of three cuts," Goldman stated on January 10.

The comment continued, "The December jobs report could have marked a significant shift in the Fed's risk assessment toward inflation, and the case for rate cuts has lessened, especially with a subdued average hourly earnings report."

The Fed initiated a rate-cutting cycle in September, which led to a surge of over 50% in BTC values, reaching unprecedented highs above $108,000.

Goldman and JPMorgan maintain some expectations for cuts, but Bank of America is wary of a prolonged pause and skews predictions towards a potential rate hike or tighter policies. The 10-year Treasury yield, sensitive to rate fluctuations, has surged by 100 basis points since the initial rate cut.

ING stated, "Given the recent economic indicators, the market is correct in perceiving an extended hold from the Fed. This sentiment will solidify further if core inflation continues at 0.3% month-on-month for the fifth consecutive month next week."

The release of the December Consumer Price Index report is scheduled for January 15, and concerns persist that base effects may exacerbate inflationary pressures, reinforcing a hawkish outlook from the Fed.