Article by Mary Liu, BitpushNews
The release of weak US Consumer Price Index (CPI) data on Wednesday afternoon boosted investor expectations of interest rate cuts, leading to a rise in financial markets.
Data provided by the US Bureau of Labor Statistics showed that the “core” CPI, which excludes food and energy prices, rose by 3.6% year-on-year. This data was in line with market expectations and slightly lower than the 3.8% increase in March. The month-on-month CPI for 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, and traders see it as a positive signal for the possibility of rate cuts before the end of the year.
Data from CME FedWatch tool shows that following the release of the CPI, the market now predicts a 70% chance that the Federal Reserve will begin cutting rates at the September meeting, up from 45% last month.
Benefiting from the positive impact of low CPI, the S&P, Dow Jones, and Nasdaq indexes all reached or approached historical highs on Wednesday, closing up 1.17%, 0.88%, and 1.40% respectively.
According to Bitpush data, Bitcoin was on an upward trend on Wednesday, surging from a low of $61,315 to a high of $66,420 in the afternoon. At the time of writing this article, the BTC trading price was $66,035, up 7.21% in the past 24 hours.
Under the momentum of Bitcoin, almost all of the top 200 tokens in terms of market cap rose on Wednesday. Livepeer (LPT) performed the best, rising by 20.8%, followed by Axelar (AXL) and GMX (GMX) with increases of 18%. Ribbon Finance (RBN) experienced the biggest decline, down 21.5%, followed by Pepe (PEPE) with a decrease of 2.6%, and Starknet (STRK) with a decrease of 1.9%.
The current overall market capitalization of cryptocurrencies is $2.38 trillion, with Bitcoin’s dominance rate at 54.7%.
Cooling CPI does not mean victory for the Fed on inflation progress
Despite the market’s positive reaction to the CPI data, Youwei Yang, Chief Economist and Vice President of BIT Mining, warned that it is too early to declare victory in inflation progress.
In a report, she stated, “Despite the introduction of loose policies and the expected CPI inflation rate reaching 3.4%, the current global economic situation still resembles a dangerous scenario of mild stagflation. Today’s policymakers seem to underestimate the risks of stagflation, echoing the scenario of the 1970s, although extreme inflation rates from that era have not been observed.”
She added, “Despite these risks, many investors and policymakers remain overly optimistic, as evidenced by historically high price-to-earnings ratios in many major market sectors. Cryptocurrencies are always the first to react when the market faces potential risks, which is why they have been declining in the past few months, despite the seemingly worrisome false prosperity brought by AI-driven stock growth.”
Bitfinex analysts also expressed concerns, warning that the decline in CPI does not guarantee that the Federal Reserve will lower interest rates.
They stated, “Investors see this as a bullish shift, as it marks the first decline in Consumer Price Index (CPI) inflation in the past three months, and it comes after the Fed announced its intention to gradually reduce quantitative tightening. Over the past two months, CPI has formed a local top, so this is seen as favorable for risk assets, but it has had the opposite effect. However, our inflation rate is still above 3%, and yesterday’s PPI inflation data showed an increase for the third consecutive month. While the decline in inflation data is good news, investors will have to wait and see if the Fed considers it positive enough to cut rates.”
Leena ElDeeb, Research Assistant at 21Shares, stated, “CPI alone is not enough to convince the Federal Reserve to cut rates, especially considering that the data is still far above the 2% target, as expressed in the FOMC meeting two weeks ago. The hope for a rate cut in the short term is becoming increasingly slim.”
ElDeeb warned, “With uncertainty still surrounding rate cuts, the recovery may be slow. Typically, higher interest rates reduce the attractiveness of risk assets such as tech stocks and Bitcoin, as investors can obtain substantial returns from safer options like US Treasury bonds. This prompts short-term investors to turn to traditional markets.”
ElDeeb added, “However, despite the short-term impact on the market, many investors have a long-term view on Bitcoin. Bitcoin is a global asset that can protect against currency depreciation and economic instability. While Fed policies may trigger short-term volatility, they will not fundamentally alter Bitcoin’s long-term trajectory.”
She concluded, “Therefore, Bitcoin currently holds a unique position as a risk-bearing and risk-hedging asset, leading to unique market dynamics.”
Dan Tapiero, CEO of investment firm 10T Holdings, believes that if Bitcoin can reclaim support at $65,000, its price could continue to soar by over 45%. He stated on the X platform, “Breaking $65,000 will take it directly to $90,000… and then some, very clear sideways overlapping flag consolidation about to complete.”
Market analyst Mustache agrees with Tapiero’s speculation and pointed out on Wednesday, “Bitcoin’s weekly Stoch RSI just crossed bullish, indicating that the biggest trend is about to come.”
