The price of bitcoin (BTC) touched $17,000 for the first time in 2023, rallying alongside stocks and bonds on hopes the U.S. Federal Reserve may further slow its pace of monetary tightening.
The Bureau of Labor Statistics (BLS) was scheduled to release its Nonfarm Payrolls figures at 8:30 AM ET, but the real start of the rally came 90 minutes later after the ISM Non-Manufacturing Index (commonly known as ISM services) for December significantly dropped from 56.5 to 49.6. The services index fell below 50 for the first time since May 2020, and any value below 50 for this indicator indicates an economic slowdown. Analysing the December report in greater detail reveals that the New Orders subindex, seen as a leading indicator, fell all the way to 45.2 from 56 before.
The ISM Manufacturing Index for December earlier this week registered at 48.4, marking the second consecutive month in contraction zone.
The BLS's December jobs data showed that 223,000 jobs were added in comparison to projections of 200,000, and that the unemployment rate was 3.5% as opposed to expectations of 3.7%. However, that 223,000 employment growth was the lowest number of jobs added since April 2021 and a significant deceleration from the 300,000+ prints regularly seen in the first half of 2022.
Additionally, pay growth lagged behind expectations, with average hourly wages increasing by 0.3% in December as opposed to the expected 0.4% growth. Contrary to expectations, earnings increased by 4.6% on a yearly basis.
Just after the ISM report, stock and bond prices started to soar, and they haven't looked back since. A few minutes before the close, the 10-year bond yield has dropped 16 basis points to 3.56% while the Nasdaq is up over 3%. The Fed, which was aggressive with rate hikes for the majority of 2022, took a slight step back in December, raising its benchmark Fed Funds rate by only 50 basis points rather than the prior 75 basis points. Investors are increasing their wagers that the US Federal Reserve will only increase interest rates by 25 basis points at its next monetary policy meeting in February.
Bitcoin's bounce on Friday took a little longer to get going and hasn't been as intense, but it did manage to reach $17,000 for the first time in three weeks. Perhaps the biggest obstacle to price growth, in addition to the numerous problems affecting bitcoin and the larger cryptocurrency market, has been the aggressive Fed. The upward trend for cryptocurrencies may continue to the degree that the Fed slows down the pace of tightening.
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