On Wednesday, Bitcoin climbed close to $64,800, marking its strongest performance in weeks. This surge followed the release of U.S. inflation data that cooled more than economists had anticipated, leading traders to abandon bets on a Federal Reserve interest rate hike this month.
The inflation rate for June decreased from 4.2% to 3.5%. The core inflation rate, which excludes volatile food and energy prices, also fell from 2.9% to 2.6%. The cooling of this core measure indicates that the easing of price pressures is not solely due to declining energy costs. This development has effectively removed the most compelling argument for implementing further rate increases.
Following the data release, the market-implied probability of a rate hike plummeted from 43% to 13%. Concurrently, the yield on the two-year Treasury note dropped by six basis points.
Bitcoin's price rose by 3.6% over the past 24 hours and is up 3.3% for the week, with trading volume reaching approximately $31 billion. Ethereum outperformed, approaching $1,880 with a daily gain of 5.3% and a seven-day increase of 7.1%.
Interest rate hikes typically have a negative impact on Bitcoin and other risk assets. When the Federal Reserve raises rates, cash and government bonds begin to offer attractive and guaranteed returns. This reduces investors' incentive to hold assets that provide no yield and can experience daily volatility as high as 5%.
Conversely, a cooling inflation environment implies the Fed has fewer reasons to hike rates. Consequently, the impetus for tightening monetary policy weakens, leading to a reversal in capital flows.
Jeff Ko, Chief Analyst at CoinEx, stated, "Bitcoin remains a rate-sensitive risk asset, not a macro hedge." He believes this data release alleviates "short-term downward pressure but fails to build a lasting breakout momentum."
With the core inflation rate at 2.6%, it remains above the Federal Reserve's 2% target. Therefore, this data provides the central bank with room to maintain its current policy stance rather than a rationale for cutting rates. Ko pointed out that the September Federal Open Market Committee (FOMC) meeting will be the next significant macroeconomic test. He also highlighted the need to monitor the U.S. dollar's trajectory and whether inflows into Bitcoin ETFs can be sustained.
Comments