Key Takeaways:
- A JPMorgan executive predicts a bullish year for the US dollar, as the Fed intends to attack the growing inflation.
- The dollar index confirms the predictions, while risk assets such as the crytpo market take the back seat.
- The crypto market cap nearly halved in the previous 10 weeks, and might extend the bearish bias further in 2022.
YEREVAN (CoinChapter.com) – According to the US Bureau of Labor Statistics’ December report, the consumer price index (CPI) came in at 7%, a four-decade high for the US economy. However, Federal Reserve Chair Jerome Powel announced that the Fed would execute four interest hikes in 2022, starting March. The hawkish policy will end the quantitative easing and recover the US dollar.
Additionally, banking giant JPMorgan Chase & Co. thinks that the recovery will extend until after the Fed’s interest rate hikes. JPMorgan’s Executive Director of Global FX Strategy, Daniel Hui, voiced high hopes for the dollar’s recovery in 2022.
The market is still going to be in some sort of price discovery mode. Typically the peak of the dollar comes about one to two months after Fed liftoff.
commented the expert.
Mr. Hui also asserted that the current cycle is unusual for all market participants. The executive added that the Fed didn’t initially expect the price pressures to persist after the supply chain issues were resolved.
Also read: Bitcoin to dive lower in the wake of the FOMC meeting, says analyst.
JPMorgan’s bullish predictions join another banking titan Goldman Sachs. Moreover, the latter predicted even more aggressive tapering on the Fed’s part, with not four but five interest hikes in March, May, July, September, and December.
The evidence that wage growth is running above levels consistent with the Fed’s inflation target has strengthened, and we have revised up our inflation path. In addition, Chair Powell’s comments earlier this week made it clear that the Fed leadership is open to a more aggressive pace of tightening.
reported econominsts at Goldman Sachs.
Rising Dollar Index (DXY)
Additionally, the dollar index (DXY) stood at 96.5 after breaking the year-to-year record at 97.4. In hindsight, DXY reflects the strength of the US dollar against the basket of leading currencies worldwide. In detail: the Euro, Swiss Franc, Japanese Yen, Canadian dollar, British pound, and Swedish Krona.
Also read: Bullish dollar signals push Bitcoin further into a bear trap.
According to the latest prediction from Julia Wang, JPMorgan’s Private Bank Global Market Strategist, the DXY will stay between 95 and 98.
Our range for the board dollar is between 95 and 98. […] But we do think the dollar strength, broadly supported by the prospect of more Fed normalization, had a relatively stronger US economy, especially compared with a few other DMs and most emerging markets.
said the strategist.
What about the crypto market?
DXY and Bitcoin (BTC) charts have displayed an erratic inverse correlation in the past. As a hedge against inflation, Bitcoin has risen against the dropping DXY before and vice versa.
Thus, when the Fed doubles down on the hawkish policy, investors might flock back to the strengthening greenback instead of searching for alternative solutions and diving into risk assets, such as the crypto market.
Experts expect the dollar to rise further in 2022, so the recovery could reinforce the crypto market’s bearish prospects. The total crypto market cap stood at $1.7 trillion on Jan 31, as it wiped off all the Q3 gains. The market followed Bitcoin’s decline and dropped 43% lower than its all-time high of $3 trillion on Nov 10.
Also read: Will Fed rate hikes crash Bitcoin to $20K in 2022? Think again.