YouHodler’s chief of markets, Ruslan Lienkha, said recent decisions by a relatively healthy United States would affect world markets, even if they knew they were coming.
Lienkha said markets expected a rate cut, given Fed signals at previous meetings. While a 0.5% rate cut was deemed bold and a signal of its commitment to easing monetary policy, the Fed must be measured to avoid reigniting inflation.
“This balancing act underpins the market’s expectation for a more gradual pace of rate reductions,” Lienkha said. “Any predictable move by the Fed is generally favorable for financial markets, as it reinforces the perception that the economic outlook is stable and policy changes are well-anticipated. A rate cut lowers borrowing costs, increasing liquidity in the financial system. This, in turn, attracts more capital inflows into various types of investments in the U.S. markets, potentially amplifying pressure on the euro and European bond market.”
Lienkha said there is a degree of correlation between the actions of the ECB and the Fed; however, this alignment is driven more by the shared external nature of inflationary pressures than by direct coordination. While both central banks aim to navigate disinflation, the EU may be more successful in this effort due to its currently weaker economy, which naturally reduces inflationary pressures at a faster rate.
With the U.S. economy in better shape compared to Europe, Lienkha said the Fed can afford to implement a more gradual pace of rate cuts in 2025. This relative strength is likely to attract international capital flows, including from the EU, thereby strengthening the U.S. dollar.
“A weaker Euro may help the EU to maintain a goods and services trade surplus with the US,” Lienkha said. “However, I don’t think that it will help much, given coming Trump’s tariffs for imports. Additionally, segmentation in global trade could further amplify the downward pressure on the euro relative to the dollar.”
He added that cryptocurrencies are still too volatile to serve as an effective hedge against traditional currencies in developed economies. However, they are increasingly viewed as a long-term hedge against inflation. In this context, faster rate cuts by the Fed would inject more liquidity into the financial system, potentially boosting cryptocurrency prices and global interest in the market, including Europe.”
“Fed policy has an indirect impact on the cryptocurrency market due to the growing correlation between crypto and traditional financial instruments, as cryptocurrencies become increasingly integrated into traditional finance,” Lienkha observed. “While the administration can directly influence the crypto market through policy decisions and regulatory actions, the Fed’s role is limited to managing monetary policy, which indirectly affects crypto via its impact on liquidity and investor sentiment in the financial ecosystem.”