US Fed Rate Cut of 50 Bps Clouded By Retail Sales and Jobless Claims; ECB Cuts Rate

September brought stronger-than-expected growth in retail sales that clouded possible US Fed rate cut. This, coupled with an unexpected drop in new jobless claims gives a potential, short-lived boost to the economy and crypto market.

Meanwhile, the ECB resorted to a third rate cut this year influenced by the weak growth outlook and the inflation scare.

Mixed Economic Signals Keep US Fed Rate Cut on the Table, ECB Follows Suit

The outlook for the next US Fed rate decision was clouded by stronger-than-expected retail sales and a decline in jobless claims. This signaled resilient economic activity despite mixed data. Meanwhile, the European Central Bank’s recent rate cut to 3.25%, its third of the year. 

These factors contribute to a complex backdrop for the crypto market. Lower rate typically support risk assets like Bitcoin. Yet, persistent uncertainty leads to temporary downward pressure on digital asset prices.

The S&P 500 managed to inch higher at the opening bell following that news. The market was acting optimistic, but there were caution signals as the trends were not likely to last longer.

Stronger-than-expected retail sales data raised some questions. most of them were regarding the Fed possibly holding off on easing rates at December meeting. Those concerns were tempered as a weak industrial production report clouded the overall economic outlook. Mixed signals on the economy’s momentum haven’t stopped markets from betting on a near-term rate cut.

US Treasury yields climbed Thursday after good economic signals emanated from fresh data. The 10-year Treasury yield was up over 5 basis points to 4.071%, while the 2-year yield added five basis points to 3.993%. 

However, claims for jobless benefits fell to 241,000 in a week. This is well below the forecast that continued to show labor markets’ resilience. The data underpinned an underlying economic vitality that contradicts the expectations of impending US Fed rate cuts, which officials had raised several times this week.

Some expert think the fact that inflation was up, might also help Bitcoin to rocket. Just recently reports showed that inflation has come in hotter than expected at 1.8% in September, as compared to market expectations of 1.6%.

ECB Cuts Rates, Maintains Optimistic Inflation Outlook

Similar to the US Fed rate cut, the European Central Bank cut its key interest rate to 3.25% at an October meeting. This was the third 0.25% cut this year. The move had been expected after policymakers had indicated that the economic outlook was weakening and inflation pressures were easing. In a statement, the ECB’s Governing Council said the disinflation process was “well on track”. This represents the most optimistic outlook during this cycle.

Inflation in the euro zone slowed to 1.8% in September—below the ECB’s target of 2% for the first time in three years. Even so, the central bank still sees a risk of temporary increases that could temporarily push inflation above the target. This is the first consecutive rate cut from the ECB since December 2011.

ECB President Christine Lagarde said the central bank discussed only a 25bp cut and not a larger 50bp cut. This contrasts with the US Federal Reserve’s decision in September to cut by 50bps.

Crypto Market Stalls Despite Rate Cuts

The market hasn’t reacted positively despite the ECB recent rate cut to 3.25%, which is typically a favorable condition for cryptocurrencies. Several macroeconomic factors are contributing to this unexpected trend.

September’s stronger-than-expected retail sales and a drop in the US jobless claims signal continued economic resilience. This has led to a rise in Treasury yields, which makes traditional investments more attractive. However it dampens demand for alternative assets like crypto.

Additionally, concerns persist about the sustainability of the economic recovery. While lower rates generally support growth and may eventually benefit digital assets, uncertainty about future Fed policy create a cautious environment for investors.

This could result in temporary pressure on crypto prices even in the face of easing monetary policy. As markets digest these factors, the potential for a rebound remains. This will happen if future economic indicators align with expectations of continued US Fed rate cuts or if inflation shows signs of further decline in the US and the eurozone.