Mini Crypto Rally Follows Key Benchmark Interest Rate Announcements

The crypto markets rallied within 24 hours following the much-anticipated round of recent interest rate announcements by key central banks, with the global cryptocurrency market cap up nearly 5% to US$1.06 trillion, according to CoinGecko data.

On February 1, 2023, the US Federal Reserve (Fed) raised its benchmark interest rate by 0.25% to ease inflationary pressures, bringing the federal funds rate to 4.50-4.75%. The Fed interest rate hike was much in line with market and analyst expectations. US government bonds and stocks also rallied to the Interest rate announcement.

Meanwhile, the US Bureau of Labour Statistics released the latest US employment situation summary on February 3, 2023. The US employment report, together with other data, is used by the Fed in setting monetary policy. According to the report, total nonfarm payroll employment rose by 517,000 in January 2023 compared to an increase of 223,000 in December 2022. The January 2023 unemployment rate was 3.4%, from 3.5% in December 2022.

On February 1, 2023, the United Kingdom (UK) shared plans to establish a regulatory framework for crypto assets to encourage innovation, protect customers and protect the financial stability and integrity of the UK market. 

The UK government opened up a “consultation and call for evidence” on the financial services regulatory regime for crypto assets. According to the UK government’s press release, the consultation, which closes on April 30, 2023, is seeking feedback from various stakeholders, including crypto-asset firms, technology firms, financial institutions, other businesses impacted by crypto asset regulation, trade associations, representative bodies, academics, legal firms, and consumer groups. 

On February 2, 2023, the European Central Bank (ECB) and the Bank of England both raised their benchmark interest rates. 

The ECB raised its benchmark interest rates by 0.5%, taking the deposit rate, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility to 2.50%, 3.00%, and 3.25%, respectively, with effect from February 8, 2023. 

The Bank of England also hiked its key interest rate by 0.5% to 4.0%.  per cent. The Bank of England noted that inflation had started to edge back and was projected to fall further for the rest of the year. 

The following cryptocurrencies trading up within 24 hours of the Fed interest rate announcements: Bitcoin (3.6%), XRP (3.9%),  Ethereum (6.4%), Cardano (7.7%), Shiba Inu (9.0%), Polkadot (9.3%), and Polygon (14.2%).