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FinanceWorld Markets Review: 16th January 2024 – Dollar, Gold, Yen, Bitcoin

The dollar surges to a one-month high due to a decrease in rate-cut bets.

The dollar surged to a one-month high against a basket of currencies, reaching 103.16, a one-month high. The euro fell 0.54% to $1.0892, marking its steepest one-day percentage drop in two weeks. European Central Bank officials downplayed the idea of early rate cuts, causing uncertainty over the timing of the moves. Some policymakers maintained a cloud of uncertainty over the timing of the moves, with hawkish comments fueling concerns that market pricing for the Fed rate path may also be aggressive.

A bleak outlook for Germany's economy, which shrank 0.3% last year, was likely another factor weighing on the euro. Consumer expectations of euro zone inflation three years ahead fell sharply in a November poll to 2.2%, from 2.5%. Sterling was last down 0.71% at $1.2637 after data showed British wage growth slowed sharply in the three months through November, supporting the idea that the Bank of England will cut rates heavily this year.

The dollar was 0.58% higher against the Japanese yen, at 146.65 yen to the dollar, around a five-week high. The Australian dollar, which tends to fall when investors are worried about taking on risk in the market, was down 0.87% at $0.6603. Investors awaited comments later on Tuesday from the Fed's Christopher Waller, whose dovish turn in late November helped trigger a blistering year-end market rally.

Markets are pricing in a 69% chance of a 25 basis point cut in March from the Fed, versus 77% a day earlier and 63% a week earlier, the CME FedWatch Tool showed. Traders expect cuts of roughly 160 basis points this year.

The gold price remains high due to the ongoing unfolding of geopolitical tensions.

Gold (XAU) price rose by 0.28% on Monday due to growing demand for safe-haven assets amid escalating Middle East tensions. The conflict between Israel and Hamas has surpassed 100 days, and Israel continues its military campaign. Iran took responsibility for airstrikes near the US consulate in Iraq as a response to US attacks in Yemen. Gold often performs well in times of economic and geopolitical instability, offering a counterbalance to the heightened risks associated with more volatile assets. Market expectations of the Federal Reserve cutting rates in Q1 have increased, with a 73% probability of a rate cut in March. Lower interest rates favor gold as they decrease the opportunity cost of investing in non-yielding bullion. Traders should focus on the release of the US Empire State Manufacturing Index, which could negatively impact XAU/USD and potentially bring the price below 2,040.

The Japanese Yen is experiencing a decline due to the BOJ's unlikely increase in interest rates this month.

The Japanese yen (JPY) lost 0.57% on Tuesday due to the strengthening US dollar and rising safe-haven flows from the Middle East military conflict. The Bank of Japan (BOJ) is unlikely to raise interest rates this month, as the latest macroeconomic statistics have disappointed investors and lowered the chance of a rate hike. Japan's wholesale inflation showed a surprising year-on-year decline, slowing for the twentieth consecutive month. The central bank's Governor, Kazuo Ueda, has emphasized the need to keep ultra-loose until inflation becomes driven by domestic demand and higher wages. USD/JPY was rising during Asian and early European trading sessions due to safe-haven flows in the greenback. Traders should focus on the release of the US Empire State Manufacturing Index and FOMC member John Waller's speech to gauge the mid-term bullish trend in USD/JPY.

The potential implications of a Bitcoin ETF for crypto exchanges in 2024.

The first Bitcoin ETF in history is expected to be approved in early 2024, allowing institutional investors to gain exposure to Bitcoin without needing to custody the underlying asset. This will impact existing cryptocurrency holders and the exchanges they trade on in many unexpected ways. An Exchange-Traded Fund (ETF) is designed to track the performance of a specific index, commodity, or basket of assets, and if all goes well, Bitcoin will be tradable just like any other commodity, allowing well-funded investors to allocate capital to BTC for the first time.

The crypto community is excited about the prospect of the first ETF being approved, as it will drive more consumers to buy crypto and pave the way for further cryptocurrency ETFs. In the aftermath of the first Bitcoin spot ETF launching, other Bitcoin spot ETF applications will likely be approved, and the first Ethereum spot ETF will get the thumbs up from regulators. This trend can generate a snowball effect with positive effects on the entire crypto market.

Compliance will be a net good in 2024, as the number of exchanges not participating in user verification will dwindle to a handful of offshore platforms that believe they can dodge regulators. While the average crypto investor doesn't enthuse about compliance, they recognize that it is a net good for the industry. Exchanges that know who their customers are can better thwart hacks and other cyber attacks, mitigating the fallout from onchain exploits and providing some redress for users affected. Compliance isn't just about mitigating outright crime but also helps with monitoring attempts at market manipulation.

If you're trading on a CEX in 2024, it will almost certainly be one that incorporates a customer compliance program. The remaining exchanges that circumvent this will be less liquid and less safe to trade on, leaving them the preserve of fringe characters who are unable or unwilling to complete verification elsewhere.

One interesting exercise to play in the context of presumptive ETF approval is guessing the second-order effects. We know an ETF will be good for Bitcoin, but how else might this narrative play out and what opportunities does this present for shrewd traders to capitalize? Within Bitcoin itself, we now have an entire ecosystem operating on its blockchain that has little to do with BTC. This year, exchanges that have proactively supported Ordinals and BRC20s will likely benefit from the faith they have placed in Bitcoin assets. If Bitcoin has a good year, so will these exchanges, whose users will benefit from access to some of the most promising tokenized projects building on Bitcoin.

In 2024, expect , volume, and greater value than ever to be moved on-chain as Bitcoin stands on the precipice of a historic moment that will alter the entire industry.

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