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Why Dogecoin Is Sinking This Week
Dogecoin (CRYPTO: DOGE) is seeing a big pullback in this week's trading. The popular meme coin was down 20.6% over the last seven days of trading as of 4 p.m. ET Friday, according to data from S&P Global Market Intelligence.
The Dogecoin token is facing significant selling pressures this week in conjunction with the Federal Reserve's comments on the interest rate outlook for next year. Investors may be getting fewer interest rate cuts than previously anticipated, and the shift in outlook has prompted a wave of selling across the cryptocurrency market.
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The Fed's new rate outlook spurred massive crypto market sell-offs
The Federal Reserve held its latest meeting on Wednesday and delivered the 25-basis-point cut for the benchmark interest rate that investors had anticipated. Unfortunately, comments from Fed Chair Jerome Powell arrived with some unwelcome news that triggered a surge in selling pressures for both stocks and cryptocurrencies.
For starters, Powell said that the decision to deliver the latest rate cut was not unanimous and was a subject of debate among the central banking authority. Even worse, he indicated that the Fed now expects to deliver only two additional interest rate cuts of 25 basis points each next year. Previously, the Fed had indicated that it expected to serve up four cuts on that level across the year. Dogecoin and other cryptocurrencies saw huge sell-offs on the news due to the possibility that higher-than-expected interest rates will make investors more risk averse.
What comes next for Dogecoin?
As a meme coin, Dogecoin can sometimes see big movements on little or no news. But that doesn't mean that the cryptocurrency's valuation is disconnected from the broader macroeconomic backdrop. The Federal Reserve's new forecast for rate cuts signals that the central banking authority is still concerned about inflationary pressures, and this dynamic could tamp down bullish momentum in the crypto market.
On the other hand, Dogecoin and other top cryptocurrencies have already seen some rebound momentum following the big sell-offs spurred by the recent Fed meeting. As of 4 p.m. ET Saturday, the token was up 4.3% over the last 24 hours of trading.
With a less favorable outlook in interest rates, Dogecoin investors may have to depend on the incoming Trump administration and potential promotion from Tesla CEO Elon Musk to spur the token's next big bull rally. But even with the recent pullback, the Dogecoin token's price is up 252% across 2024's trading.
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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
