The BTCUSD pair advanced 2.88% to $43,071 over the past week. The $39,650 recovery phase started on Monday, January 10. Last Tuesday, price action picked up after Fed Chair Jerome Powell’s testimony before the Senate Banking Committee. Powell allayed fears that the central bank would be overly aggressive in running off its huge balance sheet.
Bitcoin rose to $44,322 last Wednesday on the heels of the US December inflation report. The reading exceeded the median forecast, but failed to boost the dollar due to a decline in UST yields. Despite that red-hot inflation print, the market opted to “buy the rumor and sell the fact”.
On Thursday, the DXY index hit a new low as profit-taking broke in all markets ahead of the long weekend stateside. The trigger for a selloff of US equities and a pullback in stock indices was comments from the Fed’s Lael Brainard, who stated that the regulator could lift interest rates as early as March. A sharp rise in the 10-year UST yield underpinned the dollar and put pressure on risk-sensitive assets, including cryptocurrency.
On Monday, January 17, the greenback and US index futures opened slightly higher. Against this background, the BTCUSD pair sank to $42,300. Bitcoin traded around $42,600 on Monday, with markets offline in observance of Martin Luther King Day. FX markets saw subdued volumes, while BTC saw sharp multidirectional fluctuations in the range of $42,000-43,400.
Pivotal factors driving the cryptocurrency market in January include the dynamics of the 10-year UST yield, stock indices and the DXY index. The Fed's March rate hike is priced in, so buyers have the time and energy to turn the tide in their favor.