Strong Dollar and High Interest Rates! What is the Latest Situation in the Critical Equation for Bitcoin?

As global markets see a recovery led by technology stocks, uncertainties regarding inflation and interest rate hikes continue to dominate the agenda. Micron's financial forecasts, which exceeded expectations, supported U.S. stock futures. The Japanese yen weakened against the dollar as the messages from the Bank of Japan (BOJ) were not as hawkish as the markets had anticipated.

Following the sell-off in the latter part of the previous session on Wall Street, Nasdaq 100 futures rose by about 1%, while S&P 500 futures increased by 0.6%. In Asia, technology stocks also led gains. Japan's Nikkei 225 index rose by 2.9%, and South Korea's Kospi index increased by 1.3%. After strong expectations, Micron shares rose, and Google's launch of the Gemini 4 Argon AI model supported Alphabet shares.

With the decline in oil prices, U.S. Treasuries recovered some of their losses. The yield on the U.S. 10-year Treasury, after reaching its highest level since 2002, stabilized around 5.28%. The yield on the 30-year Treasury was approximately 5.62%. Following the losses in U.S. Treasuries on Wednesday, selling pressure on bonds became evident in the Asian session.

As the dollar strengthened, gold rose towards $4,175 per ounce, and silver gained 1.2%. U.S. crude oil fell by 1.4% to around $89.20, while Brent crude dropped below $97. Investors' attention turned to the U.S. employment report to be released on Friday, following the MSCI All Country World Index recording its first monthly loss in three months in September.

Japanese Yen Weakens as Rate Hike Expectations Diminish

The Japanese yen depreciated by as much as 0.5% against the dollar during the session, falling to 158.21. This made it the weakest performer among G10 currencies.

In the summary of the BOJ's monetary policy meeting in September, assessments aimed at preventing inflation from exceeding the target were highlighted. Some members noted that the neutral interest rate could be higher than previous forecasts and that the impact of the rate hikes made so far on companies has been limited. These members found it appropriate to implement a new rate hike without delay.

However, the statements were not enough to strengthen expectations for consecutive rate hikes in October. In the swap market, the probability of a rate hike on October 30 briefly exceeded 30% the day before, but fell below 20% on the morning of October 1. An additional rate hike by December is fully priced in.

Takuya Kanda, an analyst at Gaitame Research Institute, emphasized that while there were many hawkish views in the summary, they were not strong enough to reinforce expectations for consecutive rate hikes. According to Kanda, if the dollar/yen exchange rate rises above 158, it could raise concerns about intervention in the foreign exchange market, limiting further increases in the dollar.

The Fed's hawkish stance is also increasing pressure on the yen. The Fed, which unanimously raised the policy rate last month, is aiming for one additional hike this year and one next year. The difference in the monetary policy outlook between the U.S. and Japan is weakening the Japanese currency. Commonwealth Bank of Australia strategist Samara Hammoud stated that unless the BOJ provides clearer guidance on its future policy, expectations for rate hikes will struggle to provide strong support on their own.

In the Tankan survey published by the BOJ on October 1, the confidence of large manufacturers reached its highest level in over eight years. However, signs of intensifying inflation pressures remained limited. Taro Kimura, Bloomberg Economics' chief Japan economist, assessed that the results reduced the likelihood of consecutive rate hikes in October.

In Japan, bond yields have generally risen, particularly in the long term. This movement reflects concerns that the BOJ's tightening pace may be insufficient to control inflation. Japan's 30-year bond yield rose by about 5 basis points to 4.20%, while Australian and New Zealand bonds also lost value.

Pressure from Interest Rates and the Dollar on Bitcoin's Recovery Expectations

For Bitcoin, the recovery in technology stocks may provide support through risk appetite. However, the strengthening dollar, high U.S. Treasury yields, and the Fed's inclination for additional rate hikes could limit the rise. Therefore, the U.S. employment data to be released on Friday is crucial in determining how much the optimism in the stock markets will reflect on Bitcoin.

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