On September 17th, the Federal Reserve decided to hold US interest rates at near zero. In the Fed’s release announcing the decision, they cited global economic weakness as a key reason for leaving rates unchanged.
Many still believe the Fed will raise rates before the end of the year. However, those projections were tempered a bit after a call from one member of the Federal Open Markets Committee (FOMC) for negative interest rates in 2015 and 2016. This has the financial community speculating that QE4 could be on the table and adds to fears that the global economic slowdown is worse than first thought.
Read more about the impact of China and other key market-moving events on bitcoin in our September Market Report
Fed’s Decision Could Boost Bitcoin
The continuation of the current zero-interest rate environment should work to weaken USD and buoy investment in higher-risk alternative assets. Both of these trends should benefit bitcoin. The weaker Dollar could be particularly beneficial as USD and bitcoin have historically had an inverse relationship (see chart below).
Despite the Fed’s decision, the USD is showing surprising strength. After an initial selloff on Thursday, the USD rallied on Friday and Monday. As of this writing, the USD sits above key support and is looking to challenge overhead resistance. The key levels on the chart below provide a roadmap for the direction of the USD and, by extension, the price of bitcoin.
Three Things That Could Boost USD and Hurt Bitcoin
US Interest Rate Hike: A decision by the Fed to raise the interest rate before year’s end would place downward pressure on the price of bitcoin.
Speculation around Fed’s monetary policy: Some are taking the Fed’s decision to leave rates unchanged as a sign that the global economic slowdown is worse than initially believed. While the decision bodes well for bitcoin on the surface, it could cause uncertainty within the investment community as speculation grows regarding the Fed’s future monetary policy. This uncertainty and the looming possibility of a rate hike could lead to a reduced appetite for risk among investors.