Bank of England delays decision alongside US labor data: February macro week's liquidity impact on the crypto market

The global macroeconomic week from February 2 to 6 became a critical window for the crypto market, with developments in the UK financial markets and an unusual disruption in the US labor market jointly shaping the liquidity environment. As the UK pound holds significant weight in the US dollar index DXY, the Bank of England’s interest rate decision on February 5 directly influenced UK capital flows, thereby impacting the pricing mechanisms of global digital assets.

Strong Signals from US Manufacturing Data, Liquidity Faces Tightening Expectations

On Monday, February 2, the US Manufacturing Purchasing Managers’ Index (ISM Manufacturing PMI) was released first, showing a significant beat against expectations. The index rose to 52.6, compared to the market forecast of 48.5, with new orders reaching 57.1, and employment indicators improving simultaneously. The core implication of this data is that US economic growth is stronger than anticipated, which weakens market expectations for the Fed to cut rates soon.

For the crypto market, a robust US economy means the Federal Reserve has more reason to maintain high interest rates. In a high-rate environment, risk-free yields rise, and the dollar faces increased appreciation pressure, directly compressing valuation space and liquidity supply for risk assets, including Bitcoin. The price indicator in the PMI (59.0) was largely in line with expectations and did not trigger inflation fears, but the overall economic resilience was enough to alter market microstructure.

The Complex Relationship Between the Bank of England’s Decision and the Labor Market

The Bank of England’s interest rate decision on February 5 is a key output of the UK financial system impacting global markets. While the pound’s weight in the DXY is less than that of the euro, its exchange rate fluctuations also drive re-pricing of global risk appetite. UK labor market data—particularly unemployment rates and average wage growth—are primary reference points for BoE policy decisions, directly determining whether the Bank maintains its current stance.

In the context of ongoing tightness in the UK labor market, the BoE tends to adopt a cautious approach to prevent overheating through excessive easing. Rising labor costs in the UK directly feed into consumer prices, while ample job opportunities reinforce workers’ bargaining power for wages. This feedback loop makes each BoE decision crucial for the direction of global liquidity.

The Dilemma Facing the European Central Bank

On the same day (February 5), the ECB’s interest rate decision faced different constraints. The European Union’s Consumer Price Index (CPI) data released on February 4 informed the ECB’s inflation assessment, which directly impacts the euro exchange rate. The euro, with the largest weight in DXY (about 57.6%), means any signals from the ECB’s decision immediately influence dollar strength and, consequently, the global liquidity environment for crypto markets.

ECB President Christine Lagarde’s press conference after the policy statement often provides subtle signals about future policy. These messages are critical for global asset allocators, especially when assessing “when to cut rates.” An ECB hawkish tilt would reinforce dollar appreciation expectations, exerting pressure on digital assets.

The “Disrupted” US Labor Market Plan

The scheduled release of US non-farm payrolls on February 6—an eagerly watched event for crypto markets—was delayed due to a partial government shutdown. Starting January 31, this shutdown prevented the Department of Labor from releasing employment data on schedule. Key data expected included:

• Monthly change in average hourly earnings (impacting inflation expectations)
• Non-farm employment change (reflecting economic vitality)
• Unemployment rate (a gauge of labor market slack)
• Labor force participation rate (a long-term employment sustainability indicator)

This delay disrupted market pricing mechanisms. During the data gap, traders often extrapolate from prior strong ISM data, assuming the employment market remains robust, further reinforcing expectations that the Fed will maintain high rates long-term, putting pressure on crypto assets.

Secondary Indicators: ADP Employment and ISM Non-Manufacturing PMI

On Wednesday, February 4, two important forward-looking indicators were released. The ADP private-sector employment change data—usually published two days before non-farm payrolls—provides a market expectation reference. The ISM Non-Manufacturing PMI reflects activity in the US services sector (which accounts for about 70% of the economy), crucial for assessing recession risks.

If both indicators show strong performance, they further confirm the US economy’s internal growth momentum, reducing urgency for the Fed to cut rates rapidly. For crypto markets, this means a delay in the easing cycle, and such postponed easing expectations tend to suppress risk asset valuations.

Policy Makers’ Speech Windows

This week, speeches by Fed officials Bowmann (on February 3) and Bostic (on the afternoon of February 5) provided the market with the latest views on the economy. While these speeches are unlikely to change immediate policy stances, they offer clues about future policy directions, prompting traders to adjust expectations for liquidity conditions.

The release of the Federal Reserve’s balance sheet data late on February 5 (Beijing time) is another window into monetary supply trends. Any change in the balance sheet size hints at subtle progress in quantitative easing or tightening.

Hidden Costs of the Government Shutdown

The Michigan Consumer Sentiment Index components—including inflation expectations, five-year inflation outlook, and consumer confidence—scheduled for release on February 6, are also at risk due to the shutdown. This means the market lacks the latest insights into US consumer psychology, which directly influences next month’s spending.

Every day of the shutdown accumulates damage to the quality of economic data, and this uncertainty itself can suppress risk assets. Crypto markets are highly sensitive to policy transparency, and data gaps caused by government shutdowns often increase market risk premiums.

The Combined Effect of Central Bank Decisions on the Dollar and Crypto Liquidity

From a macro perspective, the core story of the week is: US economic resilience strengthens → Fed maintains high rates → dollar appreciates → global liquidity tightens → crypto assets face downward pressure. While the Bank of England and ECB’s decisions differ (depending on inflation and employment conditions), in the context of a rising dollar, the overall global liquidity trend is tightening rather than easing.

This presents a clear headwind for crypto markets seeking loose liquidity. Historically, whenever the dollar index surges in the short term, Bitcoin and other risk assets tend to experience corrections, as liquidity shifts from emerging assets into dollar instruments.

Outlook and Reflection

Although the week from February 2 to 6 was disrupted by the government shutdown, the data released was sufficient to alter market expectations about “when central banks will turn to easing.” Tensions in the UK labor market, strong signals from US manufacturing, and the stance of major central banks all point in the same direction: liquidity tightening continues, not reversing.

The next key point for crypto markets will be the upcoming February non-farm payrolls (date to be announced), especially the growth in average wages—this directly influences the Fed’s inflation assessment and overall liquidity environment. The ongoing tightness in the UK labor market also warrants attention, as it reflects that the global labor market remains “overheated,” delaying the window for central bank easing.