Bitcoin Weakens as Goldman Revises Fed Rate Cut Predictions, BofA Foresees Possible Rate Hike After Impressive Job Gains.

Risk assets are under pressure as investment banks revise their outlook for Federal Reserve rate cuts following Friday’s unexpectedly strong U.S. jobs report.

Bitcoin (BTC) started the week with a decline, dipping below $93,000 during European trading hours, marking a 1.6% drop on the day, as per CoinDesk data. The cryptocurrency appeared to be testing its support level at $92,000, a zone that has remained steady since late November.

The broader crypto market also faced declines, with the CoinDesk 20 Index falling over 3%. Major altcoins like XRP, ADA, and DOGE experienced even sharper losses.

In traditional markets, S&P 500 futures traded 0.3% lower, extending Friday’s 1.5% drop, which brought the index to its lowest point since early November. The dollar index (DXY) rose toward 110, the highest level seen since late 2022, supported by higher Treasury yields.

Friday’s labor market data revealed that U.S. nonfarm payrolls grew by 256,000 in December, far exceeding the anticipated 160,000. The unemployment rate also dropped to 4.1%, while average hourly earnings came in slightly below expectations at 0.3% month-on-month and 3.9% year-on-year. These figures added to concerns that inflation could persist longer than anticipated.

In response, Goldman Sachs adjusted its forecast for future rate cuts, pushing back its prediction for the next cut to June from March. Goldman now expects just two rate cuts in 2025 (June and December) and another in June 2026. The bank noted that while December’s Federal Reserve meeting signaled a shift toward focusing on inflation risks, the December jobs report has reduced the urgency for further rate cuts.

The Fed began its rate-cutting cycle in September, initially reducing the benchmark borrowing cost by 50 basis points. The central bank then continued with smaller, quarter-point cuts, before pausing in December, signaling fewer reductions for 2025. Since the first rate cut, Bitcoin has surged over 50%, peaking above $108,000.

While Goldman and JPMorgan expect rate cuts to continue, Bank of America (BofA) believes that the Fed might extend its pause. BofA analysts indicated that the risk of a rate hike or tighter policy has increased. The yield on the U.S. 10-year Treasury note has risen by 100 basis points since the initial rate cut, reflecting growing concerns over inflation and economic growth.

ING also joined the ranks of analysts cautioning about an extended pause in rate cuts, with the possibility of tightening in the future. The bank noted that the risk of such a move is heightened if core inflation remains elevated, particularly in the upcoming report.

The December Consumer Price Index (CPI) is due for release on January 15, and investors are concerned that base effects could push both the headline CPI and core CPI higher, potentially reinforcing the hawkish narrative on future Fed actions.