On Wednesday afternoon, the weak US Consumer Price Index (CPI) data boosted investors’ expectations of an interest rate cut, leading to a higher financial market. According to data provided by the US Bureau of Labor Statistics, the “core” CPI, which excludes food and energy prices, rose by 3.6% YoY. This data was in line with market expectations, slightly lower than the 3.8% increase in March, and the month-on-month CPI in April was 0.3%, lower than the expected 0.1%.
This is the first time in over four months that the CPI has met or fallen below market expectations. Traders believe this is a positive signal for the possibility of interest rate cuts before the end of the year. Data from CME FedWatch tool shows that after the release of CPI, the market currently expects a 70% chance that the Federal Reserve will start cutting interest rates at its September meeting, higher than last month’s 45%.
Benefiting from the positive impact of the low CPI, on Wednesday, the S&P, Dow Jones, and Nasdaq indices reached or neared historic highs, closing up 1.17%, 0.88%, and 1.40% respectively. According to Bitpush data, Bitcoin showed an upward trend on Wednesday, surging from a low of $61,315 in the afternoon to a high of $66,420. As of the time of writing, the BTC trading price was $66,035, representing a 7.21% increase in the past 24 hours.
Under the momentum of Bitcoin, almost all tokens in the top 200 in terms of market capitalization rose on Wednesday. Livepeer (LPT) performed the best, with a 20.8% increase, followed by Axelar (AXL) and GMX (GMX) with gains of 18%. Ribbon Finance (RBN) experienced the largest decline, falling by 21.5%, while Pepe (PEPE) fell by 2.6%, and Starknet (STRK) fell by 1.9%.
The current overall market capitalization of cryptocurrencies is $2.38 trillion, with Bitcoin’s dominance rate at 54.7%.
However, despite the positive reaction of the market to the CPI data, Bit Mining’s Chief Economist and Vice President Youwei Yang warned that it is still too early to declare victory in the progress of inflation. In a report, she stated that despite the loose policies and the expected inflation rate of the Consumer Price Index (CPI) reaching 3.4%, the current global economic situation is still close to a dangerous scenario of mild stagflation. She added that policy makers today seem to underestimate the risks of stagflation, echoing the situation of the 1970s, although extreme inflation rates of that era have not occurred.
Bitfinex analysts also expressed concerns, warning that the decline in CPI does not guarantee that the Federal Reserve will lower interest rates. They stated that investors see this as a bullish shift because it marks the first decline in the Consumer Price Index (CPI) inflation in the past three months, and it comes after the Federal Reserve announced its intention to gradually reduce quantitative tightening policies. However, over the past two months, CPI has formed a local top, so this is seen as beneficial for risk assets but has had the opposite effect. Nevertheless, our inflation rate is still above 3%, and yesterday’s PPI inflation data showed a continuous increase for the third consecutive month. Although the decrease in inflation data is good news, investors will have to wait and see if the Federal Reserve considers it positive enough to cut interest rates.
Leena ElDeeb, a research assistant at 21Shares, stated that CPI alone is not enough to convince the Federal Reserve to cut interest rates, especially considering that the data is still far above the 2% target, as expressed in the FOMC meeting two weeks ago. She warned that due to the lingering doubts about interest rate cuts, the recovery may be slow. Higher interest rates usually reduce the attractiveness of risk assets such as technology stocks and Bitcoin, as investors can obtain substantial returns from safer options such as US Treasury bonds. This prompts short-term investors to turn to traditional markets. However, despite the short-term impact on the market, many investors have a long-term view of Bitcoin, seeing it as a global asset that can prevent currency depreciation and economic instability. Although the Federal Reserve’s policies may trigger short-term volatility, they will not fundamentally change Bitcoin’s long-term trajectory.
In conclusion, Bitcoin currently holds a unique position as a risk-bearing and risk-averse asset, leading to unique market dynamics.
CEO of investment firm 10T Holdings, Dan Tapiero, believes that if Bitcoin can regain support at $65,000, its price may continue to surge by over 45%. He stated on the X platform that “breaking through $65,000 will directly rise to $90,000… and then more, a very clear horizontal overlapping flag consolidation is about to be completed.”
Market analyst Mustache agrees with Tapiero’s speculation and pointed out on Wednesday that “Bitcoin’s weekly Stoch RSI has just crossed bullish,” indicating that “the biggest trend is about to come.”
Author: BitpushNews Mary Liu