Weekly Economic Review: Key Data on Central Bank Member Decisions and the Crypto Market in the First Week of February

Last week (February 2-6), the global financial markets experienced a flurry of economic data releases and central bank policy signals, with speeches from Federal Reserve members, rate decisions from the European and Bank of England, and U.S. employment data taking center stage. The biggest surprise this week was the cancellation of the key employment report on Friday due to a partial government shutdown, disrupting the market’s original expectations.

U.S. Economic Data Surpasses Expectations, Labor Market Remains Resilient

Monday’s release of U.S. manufacturing data was the highlight to start the week. The Manufacturing Purchasing Managers’ Index (PMI) unexpectedly strengthened to 52.6, well above the forecast of 48.5, with new orders reaching 57.1, indicating a significant rebound in U.S. manufacturing activity. Additionally, improvements in the manufacturing employment index further suggested that the labor market was not cooling as previously anticipated.

This set of data sent mixed signals to the crypto markets. On one hand, better-than-expected economic performance reduces the urgency for the Fed to cut rates, leading to higher U.S. yields and a strengthening dollar index (DXY). A stronger dollar typically puts pressure on risk assets like Bitcoin, as capital flows into U.S. Treasuries and other fixed-income assets, tightening liquidity in the crypto market.

Central Bank Members’ Speeches Signal Policy Divergence

Throughout Wednesday and Thursday, key decisions and speeches from the Federal Reserve, European Central Bank, and Bank of England became focal points. On Tuesday, Fed member Bowman’s comments provided the market with the latest assessment of the U.S. economy. On Wednesday, the release of ADP private employment data served as an important indicator of labor market health.

Thursday featured a series of significant events. The Bank of England announced its rate decision, followed by the European Central Bank’s policy statement and President Lagarde’s remarks. The policy stances and communication styles of these central banks directly influence the strength of their currencies against the dollar, impacting risk appetite in the crypto markets. Meanwhile, the Fed’s balance sheet changes reflected the actual implementation of monetary policy, which is crucial for the liquidity environment of crypto assets.

Employment Data Missing and Market Expectations Missed

The U.S. employment report scheduled for Friday was expected to be one of the most important data points of the week, including monthly changes in non-farm payrolls, unemployment rate, and average hourly earnings. However, due to the partial government shutdown that began on January 31, the Labor Department announced the report would be delayed. This created considerable uncertainty in the markets, as employment data directly influence the Fed’s rate decisions, and its absence deprived the crypto market of a key directional indicator.

Eurozone and Multinational Central Bank Actions, DXY Dynamics

In addition to U.S. economic data, the release of the Eurozone Consumer Price Index (CPI) reminded markets of the progress in European inflation. Since the euro has the largest weight in the dollar index, policy signals from ECB members directly impact DXY’s movement. The Swedish CPI also reflected inflation pressures in the Nordic economy. Divergences among these central banks, especially regarding interest rate policies from the Fed, ECB, and BoE, increased the attractiveness of the dollar relative to other major currencies.

Overall Impact on Crypto Markets

This week was characterized by tightening liquidity for crypto markets. Strong U.S. economic data and the Fed’s (and its members’) firm stance on policy reinforced the dollar’s appreciation. The upward movement of the dollar index directly suppressed the relative appeal of dollar-denominated crypto assets. Additionally, signals from central bank officials suggesting a potential delay in rate cuts cooled risk asset appetite.

The cancellation of Friday’s employment data reduced a potential market shock but also heightened uncertainty about the true state of the labor market. In the face of missing data, investors tend to adopt more conservative positions, exerting long-term pressure on risk assets, including cryptocurrencies. Overall, this week reflected a cautious and tightening stance among global central banks, which in the short term constrains the growth environment for the crypto market.