Market run-through

Last week saw the publication of inflation figures both here and in the US. Both sets of figures certainly seem to point to a taming of inflation, and the UK’s will have brought a much-needed bit of cheer to the otherwise beleaguered Prime Minister as he achieved his target of halving inflation. Cynics would point out that he helped cause the problem when he was chancellor, but let’s let him have his day in the sun in what was a torrid week for him. Both input and output prices are dropping in the US, and increasingly, people are expecting a soft, slow landing there and the Fed to start cutting rates next year. The CME FedWatch tool is pricing a 57.3% chance that the Fed will begin easing at the May 1, 2024, meeting. Officials from the Federal Reserve are not nearly so gung ho and continue to warn that further hikes in US interest rates are not off the agenda yet. They would say that as they want to keep policy restrictive, but with such a volatile geo-political backdrop, their caution is understandable.

This week sees a week of holidays in China as well as Thanksgiving Day, on Thursday in the US, which will take a fair amount of liquidity from the markets, and in doing so, volatility should drop. Helping this holiday mood will be the lack of anything of particular note on the world’s data docket. The US has Housing Data, Durable Goods orders and the release of the minutes from the last FOMC meeting. The Eurozone has a series of diffusion indexes released during the week, which are unlikely to bring cheer to the euro. Meanwhile, in the UK, Chancellor Hunt will present his Autumn statement tomorrow, where he will no doubt attempt to magic a rabbit out of his hat, but with finances so tight, it will be a tough trick!

Richard Matthews, Head of FX and Payment Partnerships

Behind the desk

After multiple green weeks of upward momentum in both the prices of BTC and ETH, we’ve finally seen a slowdown, with both assets finishing red on the week. Interestingly enough, last week we saw bitcoin surging towards the 38,000 USD level for the first time in over 18 months, but as what seems to be a normal trend over the last few weeks, heavy sell orders were likely sitting at that whole number. 

Most other cryptocurrencies followed BTC, with ETH declining more than 6% from that 2100 USD mark. SOL, however, continued to make fascinating moves in a world of its own, with rallies as high as 25% last week and over 150% since October. Even though stimulating to see, the market doesn’t see this as unexpected, with SOL being treated as an isolated case. Many analysts, however, do believe that we may see retracement soon when it comes to the price of BTC, with reports positing as grand a decline as 25%. If history is indicative of what is to come, these retracements are not uncommon and have been followed by significant price movement. 

The main topic on ONE’s trading desk once again was the significant congestion which is a result of the increased number of BTC transactions. We found that fees of around $20 per BTC transaction arrived within a few hours, while any fee less than $5 would take more than 20 hours to arrive. When the network is congested like this, miners tend to prioritise the higher-fee transactions, leaving the lower-fee transactions in a backlog. As a result, over the next few weeks, we will definitely be paying higher transaction fees to ensure the same standard of swift settlement as always. 

ETH’s diverse range of decentralised applications due to its blockchain platform has always resulted in enormous activity and hence higher transaction fees. BTC, for the first time in several years, reclaimed its crown, as the leader in daily cryptocurrency transaction fees. Last week, we saw Bitcoin register daily fees ranging from 2-5M more than ETH on consecutive days. On one occasion, BTC’s daily fee reached 11.6M with ETH recording 8.4M over the same period. One thing we do know, Bitcoin miners needed this increase, as they have faced less profitable periods in recent times.

Alex-Desmond Brathwaite, Senior Trader

Chart of the week

Sterling has enjoyed a positive week, having gained just over 1% against the greenback at the time of writing, and kissing the 1.25 handle for the first time in a couple of months. In truth, though, the move owes more to the USD side of the equation, with the buck pressured after cooler than expected inflation figures sparked a dovish repricing of the Fed outlook. This has seen something of a divergence between the two typical drivers of the GBP – rates, and risk; while continuing to trade in line with Gilt-Treasury spreads, the rally looks to have room left to run looking at the quid’s typical relationship with risk appetite. Using the S&P as a crude proxy suggests cable should be trading a handful of big figures higher than spot currently does. Perhaps, then, there is a bullish GBP narrative out there after all.

Michael Brown, Market Analyst at Pepperstone

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