Why is Dogecoin sinking this week?

Dogecoin (Doug -0.14%) It is witnessing a significant decline in trading this week. The popular meme coin is down 20.6% over the past seven days of trading as of 4pm EST on Friday, according to data from Standard & Poor’s Global Market Intelligence.

The Dogecoin token is facing significant selling pressure this week in conjunction with the Federal Reserve’s comments on interest rate expectations for next year. Investors may receive smaller interest rate cuts than previously expected, and the shift in expectations has led to a wave of selling across the cryptocurrency market.

The Federal Reserve’s new interest rate forecasts have led to a massive sell-off in the cryptocurrency market

The Federal Reserve held its last meeting on Wednesday and made a 25 basis point cut to the benchmark interest rate that investors had been anticipating. Unfortunately, Federal Reserve Chairman Jerome Powell’s comments came with some unwelcome news that led to an increase in selling pressure for both stocks and cryptocurrencies.

For starters, Powell said that the decision to introduce the latest interest rate cut was not unanimous and was the subject of discussion among the central bank authority. Worse still, he noted that the Fed now expects to make only two additional rate cuts of 25 basis points each next year. Previously, the Fed indicated that it expected to make up to four cuts at this level over the course of the year. Dogecoin and other cryptocurrencies saw a massive sell-off 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 due to little or no news. But this does not mean that cryptocurrency valuation is disconnected from the broader scope Macroeconomics background. The Fed’s new expectations for interest rate cuts indicate that the central bank’s authority remains concerned about inflationary pressures, and this dynamic could reduce the bullish momentum in the cryptocurrency market.

On the other hand, Dogecoin and other major cryptocurrencies have already seen some rebound momentum after the massive sell-off prompted by the recent Fed meeting. As of 4pm EST on Saturday, the token was up 4.3% over the last 24 hours of trading.

With a less positive outlook for interest rates, Dogecoin investors may have to rely on the incoming Trump administration and potential promotion from… Tesla CEO Elon Musk to catalyze the token’s next big rally. But even with the recent decline, the price of the Dogecoin token is up 252% during 2024 trading.