• Bitcoin rallies on speculation of another 50bps cut by the Fed
• But slows down after policymakers favor a smaller reduction
• Harris leading the US election polls is also reason for caution
• Focus remains on US data, PCE inflation on Friday

Fed rally loses steam ahead of PCE data

Bitcoin rallied nearly 5% on Thursday, the day after the Fed decided to cut interest rates by 50bps and to signal that another 50 are on the cards for the remainder of 2024. At the press conference following the decision, Fed Chair Powell noted that the economy is in good shape and that the decision was designed to keep it there.

The cocktail of a dovish stance on interest rates and subsiding concerns about the performance of the world’s largest economy encouraged fans of risky assets to increase their exposure. Equities marched to record highs, with cryptos rallying as well.

That said, bitcoin’s rally slowed in the following days. Although Fed funds futures are pointing to a strong 60% chance of another double reduction at the Fed’s November gathering, a Reuters poll revealed that a strong majority of economists believe that policymakers will cut interest rates by 25bps at each of the upcoming meetings. Two of them, Waller and Kashkari, were vocal about slower reductions going forward.

Perhaps that’s why traders were more careful this week. The fact that the all-important PCE inflation data are due to be released on Friday may be also a reason for caution.

Politics and ETF flows

But why are Wall Street indices conquering fresh record highs and bitcoin is still well below its own all-time peak, hit on March 14? Maybe crypto participants are more concerned about politics.

Given that Republican presidential candidate Donald Trump is the only who has adopted a pro-crypto stance, the fact that Democratic nominee Kamala Harris is leading in the polls is making them even more worried. While she pledged to support emerging technologies like artificial intelligence and digital assets just yesterday, she emphasised more on rules and regulation.

On top of that, according to data from CoinGlass, the total net inflow to spot bitcoin Exchange Traded Funds (ETFs) rebounded strongly the day after the Fed decision, but it slowed notably just the day after and nearly hit zero on Monday. A rebound was recorded again on Tuesday.

Will the rally regain momentum?

Moving ahead, for the crypto king to reaccelerate its advance, data supporting more aggressive easing by the Fed may be needed. Such developments may allow the price to break above the key resistance of $64,700 and perhaps aim for the upper bound of the recent price formation that has been containing the price action since mid-March, or the $70,200 territory marked by the high of July 29.

On the downside, a dip back below $61,600 may invite more bears into the action, who may be tempted to dive towards the next key support area of $56,200. A retreat could be the case if Friday’s data point to stickier than expected inflation, thereby easing speculation about another double cut by the Fed.