Cryptos Surge As ECB Hints At End To Rate Hikes

Cryptocurrencies extended gains early on Friday amidst relief at the European Central Bank hinting at an end to its rate hiking cycle. The European Central Bank had on Thursday raised rates by 25 basis points against expectations of a pause.

The signaling of a dovish pivot by the central bank for 20 European countries helped improve overall sentiment for cryptocurrencies. An increase in interest rates bodes ill for non-interest-bearing cryptocurrencies, which explains why a shift in the tightening stance by a major central bank has bolstered sentiment across the crypto space.

Sentiment was also bolstered by strong data set from China that showed both industrial production and retail sales far exceeding market expectations.

Reports of Deutsche Bank signing a partnership with Taurus, a digital asset technology provider to establish digital asset custody and tokenization services also boosted crypto market sentiment.

The positive sentiment also helped markets shrug off the surge in the Dollar Index, a measure of the Dollar’s relative strength, to six-month highs of 105.43 on Thursday. The euro – which has a 58 percent weightage in the Dollar Index – had plunged to $1.0631 on Thursday amidst rising rate cut expectations from the ECB, that helped lift the Index. Strong data from the U.S. that renewed expectations of a hawkish Fed also supported the Dollar’s surge, pushing the Dollar Index higher.

More than 70 percent of the top 100 cryptocurrencies are trading in the overnight green zone. Only 6 cryptocurrencies among the top 100 have declined more than 1 percent in the past 24 hours. Overall crypto market capitalization has risen to $1.06 trillion, from $1.05 trillion, a day earlier.

Among the top 10 non-stablecoin cryptocurrencies, Toncoin (TON) is the best performer, having surged 3.7 percent overnight. Ether is at the other extreme, gaining only 0.03 percent over the past 24 hours.

In the wider crypto world spanning the top 100 cryptocurrencies, 48th ranked Axie Infinity (AXS) topped the price charts with an overnight rally of 11.6 percent. 75th ranked ApeCoin (APE) which declined 5.7 percent is the greatest laggard.

Bitcoin gained half a percent overnight and is currently trading at $26,500.02. The leading cryptocurrency has gained 2.6 percent in the past week and almost 60 percent on a year-to-date basis.

Ethereum edged up 0.03 percent. Ether is currently trading at $1,624.18, registering a weekly loss of 0.05 percent and year-to-date gains of 35 percent.

4th ranked BNB (BNB), the native token of world’s largest crypto exchange Binance edged up 0.09 percent over the past 24 hours to trade at $212.45. It is however saddled with weekly losses of close to a 1 percent and losses of 13 percent on a year-to-date basis.

5th ranked XRP (XRP) gained 2.7 percent in the past 24 hours, reducing the weekly losses to 0.7 percent. Year-to-date gains exceed 46 percent.

7th ranked Cardano (ADA) and 8th ranked Dogecoin (DOGE) both added more than half a percent in the past 24 hours. Weekly losses also exceed 1.6 percent for both the cryptocurrencies. ADA has gained 0.2 percent in 2023 whereas DOGE has erased 12 percent during the same period.

9th ranked Solana (SOL) rallied 1.3 percent overnight, curtailing the weekly losses to 2.4 percent. Year-to-date gains exceed 90 percent.

10th ranked TRON (TROX) added 3.2 percent overnight and 6.8 percent in the past week, lifting gains in 2023 to close to 53 percent.

Despite the euphoria surrounding a dovish pivot by the ECB, crypto markets would have to brace for the rising monetary policy divergence between the Federal Reserve and the ECB.

Data from the U.S. that portended a resilient U.S. economy have curtailed and delayed rate cut expectations by the Fed. Data released on Thursday showed Retail Sales in the U.S. rising 0.6 percent in August versus 0.5 percent in the previous month and expectations of a rise of 0.2 percent. Producer price inflation on a month-on-month basis also jumped to 0.7 percent in August, from 0.4 percent in the previous period, surpassing expectations of 0.4 percent. Initial jobless claims for the week ended September 9 increased to 220 thousand, less than 225 thousand that the markets had factored in. The number was at 217 thousand in the previous week.

Going by the CME FedWatch Tool that captures the interest rate expectations of interest rate traders, the earliest expectation for a rate cut by the Fed is in January 2024. In response to strong data released recently, the probabilities for a quarter percentage rate cut in January has fallen to 3.6 percent, from 4.9 percent a day earlier and 9.4 percent a week earlier. Expectations of a rate cut in March also dropped to 17 percent, from 21 percent a day earlier and 26 percent a week earlier. The latest Futures pricing data suggests a 33.9 percent probability for a rate cut in May 2024. It was 37.9 percent a day earlier and 46.1 percent a week earlier.

The Dollar Index, a measure of the Dollar’s relative strength is currently at 105.29, down 0.11 percent on an overnight basis. The index, which measures the U.S. dollar against a basket of 6 currencies comprising the euro, the Japanese Yen, the British pound, the Canadian Dollar, the Swedish Krona and the Swiss Franc had closed at 105.40 a day earlier.

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