Bitcoin awaits the release of U.S. data that's expected to show the world's largest economy narrowly avoided entering a recession in the second quarter, having drawn relief from Federal Reserve (Fed) messaging on Wednesday.
The U.S. Bureau of Economic Analysis' initial reading of second-quarter gross domestic product, due at 12:30 UTC (08:30 EST), is expected to show the economy grew at a 0.5% annualized rate, rebounding from the first quarter's 1.6% contraction, according to FXStreet.
The data is pivotal as it would reveal the damage caused by inflation at a 40-year high and could inject volatility into markets. Big data releases like GDP and inflation have become more market-moving than ever, with the central bank ditching forward guidance on Wednesday and making future policy moves ultimately data-dependent. The Fed defines forward guidance as "a tool that central banks use to provide communication to the public about the likely future course of monetary policy."
Risk assets, including Bitcoin, could rally if GDP unexpectedly contracts for a second straight quarter, confirming a technical recession. A recession would bolster investors' expectations of slower interest-rate increases and eventual easing of constraints on money supply.
"Powell keeps saying 'data dependent,' which is a sign that they are worrying about recession and if one prints, they may back off hikes or QT [quantitative tightening or balance sheet runoff]," VBL, a pseudonymous trader and author of the popular GoldFix & Bitcoin newsletter and podcast, wrote in the Fed review published Wednesday.
"GDP is out this week. If that comes in negative or just very weak, stocks could really really rally. This will signal a recession, the Fed will not talk as much, and stocks may ramp higher until the Fed does talk," VBL said. Bitcoin tends to move in tandem with stocks.
GDP estimates could be underestimating the second-quarter growth rate, however, because the survey was conducted before Wednesday data that showed a narrower goods-trade deficit and an increase in the core capital goods orders in June. Both the trade deficit and core capital goods are components of GDP.
At press time, markets seem convinced that the Fed will opt for slower increases in the coming months. "The immediate priority is getting a grip on inflation, but we think the Fed will switch to 50bp hikes at the September and November FOMC meetings with a final 25bp hike in December," analysts at ING noted in comments posted after the Fed decision.
Risk assets surged on Monday after Fed Chair Jerome Powell said the central bank would likely need to slow the rate increases at some point. The policy statement acknowledged the recent softening in consumer spending and production. Powell's comments overshadowed the second-consecutive 75 basis point rate hike.
Bitcoin jumped 8% Wednesday, its biggest single-day percentage gain since June 19. The move appears to have opened doors for continued bullish action.
"Nice uptick on Bitcoin after the FOMC raise rates by 75 bps, meeting expectations," Secure Digital Markets, a Toronto-based digital assets brokerage, said in a Telegram-based research channel. "Technically, we are seeing a very clean breakout to the upside, which started ahead of the data, seeing institutions taking heavy positions on the back of a more dovish FED stance."