With various coronavirus vaccines currently being rolled out across the globe, there’s no doubt that a relative sense of calm has returned to the financial markets during Q1 2021.
This serenity is also being borne out by global economic forecasts for the year ahead, with the IMF predicting that the world’s economy will grow by 5.5% through 2021. This projection is 0.3% higher than the previous forecast, hinting at more reliable and sustainable growth in the near-term.
In this post, we’ll look at how various assets have fared this week, while asking what the last seven days have bought for Bitcoin and the crypto market as a whole?
The Return to Strength of the US Dollar
The recent economic tumult has been characterised by the relative weakness of the US dollar (USD), but the greenback continued its gradual return to strength this week.
The USD is rallying as Treasury yields continue to rise stateside, breaking through some key technical barriers in the process.
More specifically, the 10-year Treasury yield touched 1.75% at the beginning of the week, while economists are predicting that this could break through the 2% mark in the near-term (further strengthening the USD in the process).
This has also precipitated increases in the Brazilian real and Mexican peso, with the former recording a 75-basis point increase to the Selic target rate. Of course, the real remains vulnerable to macroeconomic factors as the coronavirus continues to rage, but it does suggest that the greenback rally has some genuine momentum.
Why are Stocks Pulling Back?
While the dollar continues to rebound successfully, US stocks are beginning to pull back against the backdrop of market reprice inflation risks.
This is reflected by the performance of the region’s major indexes, with the tech-led Nasdaq 100 experiencing a 3% decline since the beginning of the week.
According to Edward Moya, the Senior Analyst at Oanda, this is just the beginning of stock market volatility that will remain relatively higher in the coming months.
This is despite the easing of coronavirus restrictions and lockdown measures in the western world, with the current price shifts underpinned by the disproportionate valuations that define tech shares in relation to their current earnings.
What About Cryptocurrency and Bitcoin?
It has been a stellar 12 months for Bitcoin (BTC), with the market leading cryptocurrency having seen its price appreciate by more than 10-times since the beginning of the coronavirus pandemic last March.
Having recently stabilised around the $54,000 mark (having previously broken out above $60,000 earlier in the month), Bitcoin now appears to be taking a backseat to a wealth of major moves across alternative markets and asset classes.
This type of consolidation is likely to be welcomed by investors, particularly as historic BTC bull runs have been followed by significant declines in value. So, if the asset can consolidate its position just south of the $60,000 mark for a concerted period of time, it would hint at strong asset fundamentals and renewed stability for cryptocurrencies as a whole.
However, if the move in the long-end of the Treasury spirals out of control in the near-term, we may see some selling pressure as the underlying value of BTC starts to diminish.