Bitcoin slides as US dollar celebrates pre-FOMC mood

Despite concerns about the stability of the US banking sector, Bitcoin bulls are unable to gain traction as BTC prices are close to four-day lows. Bitcoin is trading at $27822 at the time of typing. As the US dollar strengthens ahead of the FOMC, the $28K support level for bitcoin is under threat.

After the Wall Street opening on May 1, the most well-known cryptocurrency asset began to move towards $28,000 support as markets processed recent worries about US banking. At the time of writing, the BTC/USD ratio is falling to multi-day lows. After the weekly and monthly candle closes, the pair started to decline and have lost over $1,000 since then.

During the first trading day of the week in Asia, the U.S. government’s sale of First Republic Bank to JPMorgan Chase served as a potential catalyst for volatility.

First Republic became the second-largest bank failure in American history amid questions about the move’s legality. Although there were signs that another lender might already be in trouble, Bitcoin showed little interest in imitating its behaviour when the banking crisis first began in March and instead tracked lower.

U.S. equities were placid at the opening despite the upheaval in the banking sector and its likelihood to continue, placing the crypto markets on the more volatile end of the risk asset range.

In response, traders thought about the prospect of a comedown before the Federal Reserve’s decision on interest rates, which is scheduled for May 3, was announced.

Despite the banking fragility, markets had already priced in a 0.25% interest rate hike as being almost certain because the probability of such an increase was 94% on the day, to carry the accumulative interest rate to a range of 5% to 5.25%, the highest level since 2007. The FOMC meeting will take place on May 2-3, and Fed Chairman Powell will make the announcement on May 3.

The US dollar, on the other hand, was one asset that had strong demand to begin the week, with the US Dollar Index (DXY) testing its highest levels since mid-April.

Coming up is a big week, especially for the US dollar. Prior to Wednesday, anticipate defensive positioning. Markets shouldn’t anticipate the Fed to suggest a change of course or a halt to rate increases at its meeting this week, since this would strengthen the currency and the risk-off mood.

The probability of a rate hike this week is currently priced into the bond market at 88.9%, indicating that the market has already anticipated the increase. What the Fed decides to do in June is currently the key question for markets. The market is pricing in a 34.6% likelihood of another rate hike in June and a 6.8% chance of a rate cut in June.