One of the most anticipated macroeconomic figures of this week, the US job openings for July, was released on Wednesday. The data is not very encouraging and shows a continued cooling trend in the US labor market. In addition, layoffs also increased, which shows a palpable drop in demand for labor. In this paper, we analyze Bitcoin‘s possible reaction to this data.
At noon on Wednesday (Eastern Time), the status of the Bureau of Labor Statistics’ survey on job openings and labor turnover, JOLTS for short, was released. During the month of July, jobs fell below analysts’ expectations and fears of a recession in the United States increased. It is worth mentioning that job openings in July are the lowest since January 2021.
Bitcoin’s possible reaction to JOLTS data
In July, job openings in the United States totaled 7.67 million. This is a significant decrease compared to the revised data for June, which totaled 7.91 million job openings. It is worth noting that the most recent figure is significantly below Wall Street estimates.
In this regard, experts had expected a figure of 8.1 million job offers. In simple terms, this data shows that the growth in the employment sector is cooling off rapidly. At the same time, unemployment is increasing, which is evidence that job seekers are having more difficulty finding jobs than in previous months.
This reality is becoming a trend that could lead to a recession in the world’s largest economy. This situation has Federal Reserve officials very worried, and they will meet on the 17th and 18th of this month to take related measures.
The employment data adds to the manufacturing PMI data released yesterday and together they practically force the Fed to cut the interest rate. In this last scenario, Bitcoin’s reaction will probably be positive. However, this is something that should not be taken for granted due to collateral circumstances that could arise from the Fed’s decision.
Possible scenarios for BTC after rate cuts
It would be inappropriately mechanical to think that a rate cut translates into an automatic rise in Bitcoin. The reality is much more complex than the cause-and-effect relationship that some analyses show. This is due to the potential side effects that the rate cut would have on the US economy.
First, if the rate cut in September is very mild (or not implemented at all), the chances of a recession would increase. This is because the conditions that cause the labour market to cool down do not substantially change. On the other hand, a very strong rate increase, even if it seems like the solution, could also cause problems.
Without going into details, a rate cut would bring the rate into balance with the Chinese central bank rate. As a result, a large part of the capital of Chinese companies invested in dollar-denominated assets would return to the Asian country. According to analysts, this repatriation of capital would amount to $1 trillion.
The result of this scenario would be a fall of the dollar against the yuan of up to 10%. Under this scenario, the equilibrium would be broken and the positive prospect of a weak dollar for risk assets would not exist. Thus, it can be said that Bitcoin’s reaction could be negative in both scenarios (aggressive or passive) of the Fed.
Major cryptocurrencies receive positively the JOLTS data. Source: CoinMarketCap
Crypto market welcomes JOLTS report
Despite the negative hypothetical scenarios described above, the view that rate cuts will benefit markets is overwhelming. Hence, JOLTS, which forces the Fed to cut, is being received positively by crypto investors, at least for the time being.
At the time of writing, the main digital currencies are recovering, with BTC recovering the $58,000 barrier. It should not be overlooked that a rate cut in September would have a better effect than maintaining the current rate status. Despite this, a Bitcoin rally should not be taken for granted.
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