The Bank of England has just lowered the base interest rate from 4.25% to 4%, marking the fifth reduction since August 2024.
This decision reflects careful consideration in the context of slightly rising inflation and increasing unemployment, while the cryptocurrency market expects a boost from a new interest rate cycle.
MAIN CONTENT
The BOE has cut interest rates for the fifth time since August 2024, keeping rates at 4%.
The cryptocurrency market benefits from a low-interest-rate environment with increased liquidity and higher risks.
The Fed is likely to cut interest rates soon, which will have a significant impact on global risk asset trends.
What are the reasons behind the Bank of England's decision to cut interest rates?
The BOE noted that inflation in the UK rose to 3.6% in June, while the unemployment rate is also increasing to 4.7%, creating a mixed economic picture and challenges for monetary policy.
BOE Governor Andrew Bailey emphasized that this is a 'delicate balancing' decision, reflecting divisions within the monetary policy committee as it had to vote twice to reach the final decision with a majority supporting a slight rate cut.
The policy continues to be adjusted cautiously and gradually, aiming to control inflation expected to peak at 4% in September and gradually reduce to the target of 2% by 2027, while supporting an economy facing high living costs.
This decision to cut interest rates is a necessary step to balance the benefits between controlling inflation and supporting economic growth.
Andrew Bailey, Governor of the Bank of England, 2024
How does rate cutting affect the cryptocurrency market?
Rate cuts usually stimulate increased liquidity, enhancing the appeal of risk assets like cryptocurrencies.
In the short term, information related to interest rates causes strong volatility in cryptocurrency prices due to the quick reactions of investors and traders. Meanwhile, the low-interest-rate environment encourages venture capital funds to invest more in startups and projects within the cryptocurrency ecosystem.
In addition, low yields from bonds and savings are prompting investors to shift towards Bitcoin and other coins in search of higher returns. The impact of a weakening USD also increases the attractiveness of Bitcoin as a store of value.
Will the Federal Reserve (Fed) cut interest rates soon?
Current developments indicate that the Fed may cut interest rates soon to respond to the trend of slowing economic growth and weakening labor data.
Minneapolis Fed President Neel Kashkari and San Francisco Fed President Mary Daly agree on the necessity to cut interest rates, especially if delayed too long, it could pose risks to the economy.
Using the CME FedWatch Tool, the likelihood of a rate cut in September has risen above 93%. Political pressure is also increasing as former President Donald Trump pushes for drastic cuts and prepares to nominate new Fed members.
"We should not wait too long to cut interest rates, as this could harm growth and burden the labor market."
Mary Daly, President of the San Francisco Fed, 2024
Overall, how will the interest rate change impact cryptocurrency investors?
The new rate-cutting cycle of the BOE, along with a similar possibility from the Fed, is opening up positive turning points for the cryptocurrency market, boosting investment, liquidity, and accelerating the development of the ecosystem.
Historically, periods of low interest rates often lead to significant growth in risk assets, especially cryptocurrencies, providing many opportunities but also requiring investors to pay attention to risk management.
If the Fed cuts interest rates next month, the cryptocurrency market may enter a promising new growth phase.
Frequently Asked Questions
1. Why did the BOE cut interest rates despite high inflation?
BOE considers the impact of growth and rising unemployment, while believing that inflation will soon peak and gradually decline in the coming years.
2. How does a rate cut affect Bitcoin prices?
Low interest rates typically increase liquidity and boost demand for cryptocurrencies like Bitcoin, facilitating price increases.
3. When will the Fed cut interest rates?
Data and signals from Fed leadership indicate a high likelihood of a rate cut in September 2024.
4. How does inflation in the UK affect the global financial market?
Rising inflation pressures central banks around the world to consider cautious monetary policy to maintain macroeconomic stability.
5. What should cryptocurrency investors prepare for before interest rate changes?
It is necessary to closely monitor policy developments, manage risks, and seize opportunities from the increasing liquidity in a low-interest-rate environment.
Source: https://tintucbitcoin.com/tien-dien-tu-se-thay-doi-the-nao/
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