Bitcoin dips below $80,000 after strong US jobs report shifts Fed policy outlook

Strong jobs report pushes Bitcoin below $80,000

Bitcoin fell below $80,000 on Sept. 4 after the US government reported stronger-than-expected job growth in August. The drop followed a wider market shift as investors changed their expectations for US interest rates.

The cryptocurrency dropped as low as $78,660 before bouncing back to trade near $80,000. The sell-off came as yields on US government bonds rose and the dollar became more expensive relative to other currencies.

August jobs data beats forecasts

• The Bureau of Labor Statistics reported that payrolls rose by 162,000 in August.
• This figure was far higher than the previous 12-month monthly average of just 31,000 jobs.
• The unemployment rate stayed steady at 4.1%.
• Private sector hourly wages increased 0.3% from the previous month and 3.1% from a year ago.

The data added weight to concerns that the economy is not cooling down enough for the Federal Reserve to cut interest rates immediately. The Fed is the US central bank that sets interest rates to manage inflation and employment.

What the labor report means for Fed policy

Before the jobs report came out, some investors hoped the economy would show signs of weakness. Such weakness might have encouraged the Fed to hold interest rates steady rather than raise them.

Fed Governor Christopher Waller said on Sept. 3 that he would rely heavily on August inflation data to decide whether to support keeping rates steady or raising them. He noted that the labor market was stable and near its maximum sustainable level.

The strong hiring numbers removed the argument that labor-market weakness alone should stop the Fed from acting. That now leaves inflation as the main factor in the Fed's next decision.

Markets react with rising yields and a stronger dollar

Following the report, two-year US Treasury yields rose to around 4.40%, up from just above 4.33%. The 10-year yield climbed near 4.80%, up from just under 4.75%.

The dollar index also strengthened, reaching about 99.932 from roughly 99.035 before the release.

These moves made it more costly to hold dollar-priced risk assets like Bitcoin. A stronger dollar often puts downward pressure on crypto prices.

Next key test: August CPI data

All eyes are now on the August Consumer Price Index (CPI) report, which measures inflation, scheduled for release on Sept. 11.

The Federal Open Market Committee (FOMC), the branch of the Fed that sets interest rates, meets on Sept. 15-16. The CPI report will be the last major inflation signal before that meeting.

If the inflation data comes in cooler than expected, it could support a case for holding rates steady. A hotter reading would suggest inflation progress has stalled at the same time the labor market shows renewed strength.

Why this matters for Bitcoin

Bitcoin had rallied above $80,000 earlier in September, fueled by hopes that the Fed would pause interest rate increases. The strong jobs report weakened those hopes.

Traders are now waiting to see if upcoming inflation data will change the Fed's outlook. A softer CPI could reopen room for the Fed to stay patient, while a hot print could point toward tighter policy.

• CryptoSlate