Bitcoin in Stasis Below $27K Ahead of Powell Speech

The crypto market remained risk-averse early Friday, with the focus turning to an impending speech by Fed Chair Jerome Powell following Thursday's hawkish comments by other central bank officials.

Bitcoin (BTC) traded flat at just below $27,000, following Thursday's 2% decline. Other major coins except Ripple's XRP nursed moderate losses. In traditional markets, the dollar index pulled back to 102.30 from the two-month high of 103.62 and futures tied to Wall Street's tech-heavy Nasdaq index signaled a flat open.

Treasury yields rose alongside an increased probability of the Fed delivering another 25 basis point interest rate hike next month, helping keep investor risk appetite under check. The yield on the 10-year note rose to 3.67%, the highest since mid-March, and taking the weekly gain to 20 basis points. The two-year yield also clocked a two-month high of 4.08%. Recently, bitcoin has decoupled from Nasdaq and has moved in tandem with gold, which tends to move in the opposite direction of bond yields.

Earlier in May, markets were confident the Fed would pause its liquidity tightening cycle next month and pivot to rate cuts later this year. The confidence, however, was shattered on Thursday after St Louis Fed President James Bullard advocated higher interest rates and Dallas Fed President Lorie Logan said that data at this time does not support pausing the tightening cycle.

"Hawkish comments from Fed officials and the first decline in continuing unemployment claims below 1.8 million in two months boosted US rates and the odds of a June rate hike rose to about 37%," said Marc Chandler, chief market strategist at Bannockburn Global Forex, in a daily market update. "This represents a near tripling of the probability in the past week," he added.

Optimism about a potential U.S. debt ceiling deal faded after a Reuters report said a group of Republican hardliners could block the deal if it doesn't contain robust spending cuts. The U.S. hit the debt ceiling of $31.4 trillion earlier this year, forcing the Treasury to implement extraordinary measures to keep the government functioning. Early this week, President Joe Biden expressed confidence the government will avoid an unprecedented and potentially catastrophic default.

At 15:00 GMT, Powell will speak at the "Perspectives on Monetary Policy" panel before the Thomas Laubach Research Conference hosted by the Federal Reserve.

Some observers expected a hawkish talk from Powell – an outcome that will likely ensure the end-of-the-week flows in the market remain risk averse.

"Seems like Powell needs to take the rate hike odds up again today in order to be prepared to go again in June if the debt ceiling debacle is tabled for a short term resolution," Craig Shapiro, macro advisor at LaDucTrading, tweeted. "Data remains too good right now with the SEP likely to show a lower YE23 U rate and higher PCE, both of which suggest the dots for 24 are way too low."

Earlier this month, the Fed delivered its 10th straight rate hike, with Powell maintaining a data-dependent path policy stance during his post-meeting press conference.