- Lower-than-expected CPI reports have boosted interest rate traders’ hopes of a potential rate cut in September.
- Ben Emons, CIO and founder of FedWatch Advisors, believes the market still has several months to gauge the real impact of annualised inflation.
- While the market reacted positively to the CPI report, bears retook control and pushed BTC and ETH back to previous levels.
The US Bureau of Labor Statistics released the June Core Consumer Price Index (CPI) report on Thursday.
The data shows June’s CPI annual inflation decreased to 3.0%, below market expectations of 3.1%. Meanwhile, core CPI, which excludes food and energy prices for volatility reasons, increased to 3.3%, below expectations for 3.4% (and at its lowest level since 2021).
The report highlighted decreased vehicle, gas, and electricity costs. Many market analysts believe a cooling inflation rate could signal the Federal Reserve to cut interest rates soon, specifically in September.
Shortly after its release, the crypto market saw a slight uptick of 2% in the prices of Bitcoin (BTC) and Ethereum (ETH).
BTC surged to US$58,840 (AU$87,063) and ETH to US$3,195 (AU$4,727). However, it seems the rally didn’t last long, as bears retook control of the market and stalled both coins back to their previous levels.
Related: Glassnode: Over 2.8M BTC Held by Short-Term Investors Now Underwater After Recent Price Drop
How Does CPI Affect Crypto?
Economists use CPI to calculate the change in consumer prices based on a representative basket of goods and services, including food, energy, transportation, etc.
In other words, CPI is an important metric because it provides insights into the rate at which prices increase over time. This allows authorities to adjust wages, pensions, and certain benefits to maintain a standard of living and purchasing power.
The crypto market’s relationship with CPI is more indirect. Nevertheless, its impact is still notable, as it often leads to volatility in large-cap currencies.
All in all, the crypto community received June’s CPI data positively. Despite Bitcoin’s unsuccessful attempt to regain US$60k, several months of data remain before conclusions can be reached.
Moreover, shortly after the CPI report was released, interest rate traders pushed the changes of a potential rate cut by September to 84.6%, according to the Chicago Mercantile Exchange (CME) FedWatch tool.
In an interview with CoinDesk, FedWatch Advisors’ founder and CIO, Ben Emons, believes this week’s CPI report was a good day for both the crypto and equity market and showed the neutralisation of certain trends that emerged in 2023, such as rising rental prices.
Related: Bitcoin Dips Below $60K as Fed Chair Dampens Rate Cut Hopes
Further, Emons highlighted the uncertainty of a potential rate cut in September, stating that Jerome Powell did not intend to pursue deflation.
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