-Bitcoin’s (BTC) price recovered steadily this week as investors shifted away from the dollar on the back of weaker-than-expected economic data

In detail, Bitcoin’s drop last week to below $33,000 was met with a healthy buying sentiment that pushed its per-token rate to as high as $39,300 on Feb. 1. As of Thursday, BTC’s price dipped below $37,000 but was still up 13% from its local bottom.

Meanwhile, the U.S. dollar index (DXY), which measures the greenback’s strength against a basket of top foreign currencies, rose to 97.441 last Friday, logging its best level since July 2020. However, the index had corrected by nearly 1.50% to over 96.00 by Feb. 3.

Some market analysts saw the dollar’s renewed weakness as a sign of waning rate hike fears.

For instance, Lyn Alden, founder of Lyn Alden Investment Strategy, tweeted that the U.S. Federal Reserve “reached a fever height last week in terms of making more and more aggressive tightening scenarios,” noting that the central bank may turn dovish as “economic deceleration/weak PMI data takes center stage.”

U.S. factory activity, employment drops

Alden cited the U.S. manufacturing growth, which, according to data released on Tuesday, dropped for the third month in a row in January 2022. Notably, the Institute for Supply Management’s gauge of factory activity reached 57.60, its worst level since November 2020, compared to 58.80 a month earlier.

Additionally, the ADP Research Institute data released Wednesday also showed cracks in the ongoing U.S. economic recovery, revealing that employment across regional companies fell by 301,000 in December 2021, the highest since the early days of the COVID-19 pandemic.

The lower-than-anticipated data came a week after Fed Chair Jerome Powell’s press conference. He raised speculations about raising interest rates three times in 2022 to tame the rising U.S. inflation.

Powell’s hawkish turn pushed the price of Bitcoin down as the U.S. dollar strengthened.

Currently, U.S. rate futures hint at four to five rate hikes in 2022. James Bullard, president of the Fed’s St. Louis branch, further stoked the “tightening” fears, stating earlier this week that five rises were “not too bad a bet.”

Nonetheless, his hawkish comments coincided with a recovery rally in the Bitcoin market as the dollar pared gains, prompting Alden and other analysts to say that the market may have overreacted to Powell’s tightening outlook.

Fed officials now cautiously hawkish

One of the primary catalysts behind the Fed’s rate hike plans was a steady recovery in the U.S. jobs market. But with lesser-than-expected ADP readings, the central bank could backtrack on its tightening plans.

“They have moved from nearly all talk and little action to 100% hot air,” noted Preston Pysh, founder of the Pylon Holding Company.

Related: US crypto executive order looms — 5 things to watch in Bitcoin this week

Some Fed officials have also noted that the central bank might not go ahead with rate hikes as aggressively as anticipated.

For instance, Kansas City Fed President Esther George said “unexpected adjustments” would not be in anybody’s interest. Similarly, San Francisco Fed chief Mary Daly also cautioned against tightening too quickly.

Fed @ max hawkishness. Dovish from here. Implications for the dollar.

— Teddy Vallee (@TeddyVallee) January 28, 2022

Currently, the Chicago Mercantile Exchange’s Fed Watch Tool predicts a 94.40% possibility of a 25 basis points rate hike in March 2022. But whether there would be back-to-back increases for the rest of 2022 remains unclear.

“They will hike, but not as much as the forward curve implies,” wrote Teddy Vallee, founder of Pervalle Global — a New York-based hedge fund — adding:

“Digital asset space pricing in worst case.”

As a result, the very narrative that pushed Bitcoin’s price to new multi-month lows last week appears to be showing cracks.

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