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SEPTEMBER 21, 2023

FALLS DUE TO MT GOX DELAYS

Bitcoin and other alternative cryptocurrencies, such as BNB and XRP, experienced losses as the market leader failed to generate much excitement following a delay in a crucial Mt. Gox action. The cryptocurrency exchange, which suffered a major hack in 2014, with a theft of 850,000 bitcoins worth around $23 billion at current prices, has extended the deadline for repayments to 2024. This delay was anticipated by investors, who had already factored it into their pricing. Nevertheless, Bitcoin ultimately slid back, leading to minor sell-offs in major alternative currencies, except for Toncoin, which dropped 8%, and ImmutableX’s IMX tokens, which rose 30% predominantly due to South Korean trading volumes.

ELEVATED RATES PREDICTED

The Federal Reserve has been suggesting that interest rates will remain “higher for longer” even after they conclude their current rate-hiking cycle. This means that interest rates will likely stay elevated for a significant period, surpassing what the Fed deems necessary for sustaining economic growth with 2% inflation. Looking at the central bank’s recent economic forecasts, it becomes evident that interest rates are expected to remain higher than initially anticipated for the next three years, at the very least. Moreover, although another rate hike is projected for this year, a glimpse into 2024, 2025, and even 2026 demonstrates that rates will exceed previous expectations. The Fed believes that higher real interest rates, adjusted for inflation, will be needed to temper a stronger-than-expected economy. However, it should be noted that these forecasts are only estimates and not definitive plans, as economic conditions will ultimately determine the course of interest rates.

RISING TREASURY YIELDS

Following the Federal Reserve’s decision to maintain high interest rates, Treasury yields in the U.S. surged, with the 10-year and 2-year yields reaching levels last seen over a decade ago. The yield on the 10-year Treasury reached a fresh high of 4.435%, up by approximately 9 basis points, while the 2-year Treasury hovered around levels last reached in 2006, with a yield of 5.152%. Furthermore, bond traders are preparing for Treasury yields to continue rising after the Federal Reserve indicated that interest rates will remain high well into next year. According to a recent survey conducted by Bloomberg Markets Live Pulse after the Fed’s decision, the majority of respondents believe that 2-year Treasury yields have not reached their peak yet, and that 10-year yields will likely climb above 4.5%. The Fed’s more aggressive outlook has led to a sell-off in other bond markets, with New Zealand and Australia experiencing jumps in their respective yields. Moreover, Fed’s indication of a more assertive approach has not only impacted the U.S. bond market but also agitated bond markets in other countries like New Zealand and Australia, which experienced jumps in their respective yields.

SIGNIFICANT DECREASE

U.S. applications for unemployment benefits reached their lowest level in eight months last week, showing the resilience of the labor market despite elevated interest rates. The number of jobless claims decreased by 20,000 to 201,000, the lowest since January. In addition, the four-week moving average, a less volatile measure, also fell to 217,000. This highlights that despite the Federal Reserve’s 11 interest rate hikes since last year to combat inflation, the U.S. economy and job market have performed better than anticipated. In August, employers added 187,000 jobs, keeping the unemployment rate at a low historical level of 3.8%. Job openings in July remained high, reflecting businesses’ sustained efforts to meet strong consumer demand. As a result, the number of people receiving unemployment benefits has also decreased.

INTERNATIONAL NEWS

In response to a recent slowdown in the British economy and a fall in inflation, the Bank of England (BoE) has decided to pause its string of interest rate increases. This marks the first time since December 2021 that the BoE has not raised borrowing costs. The decision was made by a narrow margin of 5-4 among the members of the BoE’s Monetary Policy Committee, with some advocating for a rate increase. Concerns were raised regarding the potential impact of tighter monetary policy on the labor market and overall economic momentum. As a result, the BoE revised its growth forecast downward for the upcoming months and identified weaknesses in the housing market. Nonetheless, despite the pause, the BoE emphasized that it is ready to raise rates again if necessary. The bank’s focus is on returning the inflation rate to its 2% target. Moreover, the BoE announced plans to expedite the reduction of its government bond holdings as a means of stimulating the economy.

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