UBS Predicts Two Rate Hikes, Potentially Pressuring Bitcoin Through Year-End

UBS's recent forecast of two Federal Reserve rate hikes this year has sent shockwaves through the market, potentially putting pressure on Bitcoin through December. The bank now expects quarter-point increases in both September and December, a shift from its previous prediction of no policy change this year.

The strong August labor data and hawkish Fed communication have contributed to the revised forecast, with UBS citing inflation risks due to supply bottlenecks as a key concern. Markets are already pricing in a 58% chance of a quarter-point hike at the September meeting, up from 52% before the jobs report.

The risk for Bitcoin is that higher rate expectations will keep Treasury yields supported, making dollar-denominated interest-bearing assets more attractive to investors. This could make them less willing to take on price risk in Bitcoin, which pays no contractual interest.