Fed Week Puts Stocks, Bitcoin, and DXY on Collision Course Before $11 Billion Expiry

A convergence of central bank decisions and a record-breaking expiry of Bitcoin derivatives is set to test global markets this week.

From Wednesday to Friday, the Federal Reserve will hold its latest policy meeting, the PCE inflation report will be released, and nearly $11 billion in Bitcoin options will expire on the Deribit exchange.

These events could determine the trajectory of stocks, the US dollar, and cryptocurrencies through the end of the year.

Rate Hike Odds Shift

Traders have dramatically shifted their expectations for the Fed’s upcoming meeting, moving from a likely rate hike to a near-certain pause.

Data from the CME FedWatch tool shows the probability of no change at 90.6%, a sharp reversal from a month ago when a hike was the favorite at 64.2%.

Despite the current pause, the consensus among economists is that the central bank is not finished tightening.

Inflation Data Could Trigger December Hike

The key to the Fed’s future path lies in Thursday’s release of the Personal Consumption Expenditures (PCE) price index, the central bank’s preferred gauge of inflation.

Economists expect prices to be 3.7% higher than a year ago, up from 3.4% in August, and well above the Fed’s 2% target.

A hotter-than-expected reading would strengthen the case for a December rate hike, while a cooler number could push the market to price in cuts.

Bond markets are already signaling caution, with the 10-year Treasury yield hovering near 5%.

European and Japanese Central Banks

The week’s central bank action extends beyond the United States, with the European Central Bank and the Bank of Japan also making decisions.

A Reuters poll found that 70 of 73 economists expect the ECB to hold its key rate at 2.50%, with most anticipating a hike in December.

The Bank of Japan is set to decide on Friday, with its 1.25% rate already the highest since 1995.

Rising Japanese rate expectations could force investors to unwind carry trades, where cheap yen funds were used to buy assets like Bitcoin.

$11 Billion Bitcoin Options Expiry

The week culminates on Friday with the expiry of $10.97 billion in Bitcoin options on Deribit, the largest expiry on the exchange’s calendar.

This single event covers 35% of all open Bitcoin contracts on Deribit, making it a critical moment for price discovery.

The market is heavily skewed toward bullish bets, with calls outnumbering puts nearly two to one.

The largest single bet targets $95,000, a price level that would require Bitcoin to climb approximately 18% in the next five days.

At the current price of around $78,000, a significant portion of these contracts would expire worthless, potentially adding to downward pressure.