Anndy Lian
The Fed, tariffs, and Bitcoin: Unpacking the market dynamics
Global risk sentiment holds steady, yet an undercurrent of caution persists, shaped by a blend of robust economic data, trade policy turbulence, and a Federal Reserve that refuses to tip its hand.
Federal Reserve Chair Jerome Powell recently signalled that no firm decision has been reached for the September Federal Open Market Committee (FOMC) meeting, leaving investors guessing about the likelihood of a rate cut. With interest rates unchanged at 4.25 per cent to 4.50 per cent for the fifth consecutive meeting, the Fed aligns with market expectations but offers little clarity on its next move.
Meanwhile, economic indicators like a strong US GDP and employment figures paint an optimistic picture, only to be muddied by new tariffs and a volatile commodity market. Add to this mix the evolving cryptocurrency narrative, highlighted by Bitcoin’s potential to hit US$141,000, and the stakes for understanding these dynamics grow even higher. What does this all mean for traditional markets and digital assets alike? I will try to explain.
Global risk sentiment and the Federal Reserve’s stance
Global risk sentiment remains balanced, neither plunging into panic nor surging with unchecked optimism. This stability stems from a tug-of-war between encouraging economic signals and unsettling policy developments.
The Federal Reserve plays a central role in this narrative. By maintaining rates at 4.25 per cent to 4.50 per cent, the Fed reinforces a wait-and-see posture, a decision that met market forecasts but left room for debate. Two voting members dissented, the most since 1993, hinting at internal divisions over the path forward.
Powell’s remarks during the post-meeting news conference underscored this uncertainty, dampening expectations for a September rate cut. According to the CME FedWatch tool, the odds of a cut dropped to 47 per cent from 63 per cent just a day prior, reflecting a market recalibration after the Fed’s cautious tone collided with upbeat economic data.
This steady sentiment faces pressure from external forces. New tariffs on India and Brazil, coupled with the removal of the “de minimis” exemption for small packages, signal a tougher US stance on trade. The White House’s proclamation of 50 per cent tariffs on “processed” copper (but not “refined” copper) starting August 1st sent shockwaves through commodity markets, with Comex copper prices plummeting by as much as 20 per cent at one point.
These moves threaten to disrupt global supply chains and stoke inflation, challenges the Fed must weigh as it plots its course. For now, the central bank opts for patience, balancing the vigour of the US economy against these looming risks.
Economic data: A bright spot amid uncertainty
The US economy offers compelling reasons for optimism. Second-quarter GDP growth clocked in at a robust 3.0 per cent quarter-over-quarter seasonally adjusted annual rate, surpassing expectations and signalling resilience. July’s ADP employment report added to the good news, revealing a surprising 104,000 new private-sector jobs.
These figures suggest a labor market and broader economy that continue to defy slowdown fears, providing a counterweight to global uncertainties. Investors and policymakers alike find reassurance in these numbers, which bolster the case for the Fed’s steady-hand approach.
Yet, this strength does not exist in a vacuum. Rising Treasury yields hint at underlying concerns. The 10-year US Treasury yield climbed 5 basis points to 4.370 per cent, while the 2-year yield jumped 7.2 basis points to 3.941 per cent. Higher yields often reflect expectations of inflation or a belief that rate cuts remain distant, both of which align with the Fed’s current rhetoric and the tariff-driven pressures on prices.
The US Dollar Index advanced 0.93 per cent, buoyed by the Fed’s stance and perhaps some safe-haven demand amid trade tensions. Gold, typically a refuge in uncertain times, slipped 1.5 per cent to US$3,275 per ounce, possibly due to the stronger dollar or profit-taking after recent gains. Brent crude oil, however, rose 1.0 per cent to US$73 per barrel after President Trump threatened tariffs on India over its energy purchases from Russia, a reminder of how geopolitics can sway commodity prices.
Market reactions: A mixed bag
US stock markets mirrored the broader uncertainty, closing with varied results. The S&P 500 dipped 0.12 per cent, the Dow Jones fell 0.38 per cent, and the NASDAQ eked out a 0.15 per cent gain. This patchwork performance reflects investor efforts to parse positive economic data against trade policy risks.
In Asia, early trading showed similarly mixed equity indices, while US equity futures pointed to an indecisive opening. The day ahead promises more clues, with China’s July manufacturing and non-manufacturing PMI data, alongside Taiwan and Hong Kong’s second-quarter GDP figures, set to influence sentiment further. These releases could either reinforce the steady outlook or tip the scales toward caution, depending on their strength.
Commodity markets, meanwhile, felt the tariff fallout acutely. The copper price collapse underscores how swiftly policy shifts can ripple through global trade. Such volatility could feed into inflation, challenging the Fed’s efforts to maintain stability. For now, markets navigate a landscape where economic growth coexists with policy-induced turbulence, leaving investors on edge but not in retreat.
Bitcoin and the cryptocurrency angle
Bitcoin offers a compelling subplot in this financial drama. On-chain analytics firm Glassnode highlights US$141,000 as a potential next significant resistance if Bitcoin breaks higher with conviction. This projection ties to the Short-Term Holder (STH) Cost Basis, which tracks the average acquisition price for investors holding coins for less than 155 days.
Currently at US$105,400, this level shows STHs enjoying an 11.5 per cent unrealised profit at recent prices. Historically, trading above this basis signals bullish momentum, a pattern Bitcoin has followed since breaching it earlier this year.
Glassnode’s analysis adds depth with standard deviation bands. The +1 SD band, at US$125,100, has repeatedly capped Bitcoin’s upward moves, with two rejections in recent months. A decisive break above this could target the +2 SD level at US$141,600, where STH profits would swell, possibly triggering profit-taking and new resistance. For now, Bitcoin hovers between US$105,000 and US$125,000, a range that may hold until a catalyst, be it policy or market sentiment, sparks a breakout.
The Fed’s announcement and Powell’s remarks dented cryptocurrency prices, with Bitcoin sliding in afternoon trading. This sensitivity to monetary policy underscores Bitcoin’s role as a barometer for risk appetite and expectations of Fed action. Matthew Sigel of VanEck argues Bitcoin serves as a hedge against monetary debasement, suggesting that signals of easier policy could ignite crypto enthusiasm.
Historical data support this: Bitcoin rose after four of the year’s prior FOMC meetings, though it dipped post-June before recovering. Lower rates, by reducing borrowing costs, often drive investment into alternative assets like Bitcoin, a dynamic worth watching if the Fed shifts gears.
The White House’s digital asset vision
The White House’s new report, Strengthening American Leadership in Digital Financial Technology, adds another layer to the crypto story. Compiled by the Working Group on Digital Asset Markets, it champions digital assets and blockchain as transformative forces for finance and beyond.
Legislative priorities like the Genius stablecoin act and the Clarity Act aim to provide structure. At the same time, recommendations urge the SEC and CFTC to clarify rules on trading, custody, and record-keeping at the federal level. Support for decentralised finance through safe harbors and regulatory sandboxes signals openness to innovation, a boon for the sector.
The report’s stance on a Bitcoin reserve stands out. Administered by the Treasury, this stockpile of seized digital assets will be held, not sold, as reserve assets. This move could legitimise Bitcoin further, boosting confidence among investors wary of regulatory hostility.
Conversely, the report opposes a US central bank digital currency, aligning with the Anti-CBDC Act and reinforcing a decentralised ethos that crypto advocates cherish. These developments suggest a regulatory tailwind for Bitcoin, though their full impact will unfold over time.
My take on the situation
I see a world of opportunity and risk in equal measure. The US economy’s strength, evident in GDP and jobs data, offers a solid foundation, but trade tensions and tariffs threaten to erode it. The Fed’s caution makes sense given these crosscurrents, yet its indecision leaves markets vulnerable to swings.
For traditional assets, volatility seems likely as investors grapple with these forces. Bitcoin, meanwhile, intrigues me most. Its potential to hit US$141,000 hinges on breaking key resistance, a feat that regulatory clarity and a dovish Fed could enable. The White House’s embrace of digital assets feels like a game-changer, though execution will matter.
I lean cautiously optimistic on crypto, believing its hedge appeal and policy support could shine amid uncertainty. Still, prudence dictates watching the Fed and global data closely—volatility cuts both ways.
Source: https://e27.co/the-fed-tariffs-and-bitcoin-unpacking-the-market-dynamics-20250731/
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