Bitcoin rises as US inflation slows in June
In June, the growth of inflation slowed down for the fourth consecutive month, marking a positive turn in the battle against inflation led by the Federal Reserve. This deceleration in inflation has been eagerly anticipated by investors, as it could strengthen the argument for reductions in interest rates in the near future.
The Consumer Price Index (CPI) from the Bureau of Labor Statistics, a comprehensive measure of price variations for a wide array of goods and services, showed a 3.0% increase over the 12 months ending in June, as revealed by recent data published on Thursday. This increase was slightly lower than the 3.1% rise that had been projected, thus falling short of the expectations of economists.
Comparing month-to-month changes, June experienced a decline in inflation by 0.1%, the first decrease since May 2020. This followed a May report where consumer prices remained unchanged, diverging from every other CPI report this year, which recorded monthly inflation rates of either 0.3% or 0.4%.
Just earlier this week, Jerome Powell, Chairman of the Federal Reserve, expressed satisfaction with the slowdown in inflation rates this year. However, he mentioned that the Federal Reserve's decision-makers are awaiting more concrete evidence that inflation is on a downward trajectory towards their 2% goal before considering rate reductions.
Bitcoin's valuation made a comeback from a four-month low, surpassing $59,000. At the current moment, Bitcoin has risen by 2.8% over the past week. Its recent fluctuations have been influenced by factors such as the repayment to Mt. Gox creditors and the sale of Bitcoin confiscated by the German Government.
Jake Ostovskis, a Wintermute OTC Trader, shared that the market has either adjusted to the fear of Bitcoin's supply excess or these concerns have started to fade. He indicated that market participants are probably in search of new narratives to engage with, particularly U.S. monetary policy developments towards the year-end, which he anticipates will gain significant attention.
Excluding the unpredictable sectors of food and energy, core prices saw a minor increase of 0.1% since May. Ostovskis noted that analysts are divided in their expectations, particularly concerning the slowdown in shelter costs which have remained persistently high.
CME traders, on one hand, had been betting on a 65% likelihood of an initial rate reduction by the Fed come September. Yet, some analysts, like Valentin Fournier at BRN, are preparing for potentially hawkish remarks that might temper enthusiasm following the recent inflation data.
Fournier forewarned that cautious statements, similar to those issued after the robust PCE figures on June 28, might lead the market to perceive that inflation isn't receding as expected. Despite these concerns, Fournier remains hopeful for encouraging CPI updates but suspects the Fed might postpone any rate decreases until September.
Yet, a number of analysts believe that the latest inflation figures set the stage for a potential rate cut as early as September.
According to Grayscale's Head of Research, Zach Pandl, a favorable report would likely support Bitcoin's valuation, especially against a weakening U.S. dollar, by presenting an appealing alternative monetary system.
Today, the Fed's goal of achieving a 2% inflation rate seems more within reach than it did two years back, when inflation surged to over a four-decade peak of 9.1% in June 2022, amidst a robust economic recovery post-pandemic restrictions.
Reflecting on the spike in inflation two years prior, the values of Bitcoin and Ethereum experienced sharp declines of 4% and 6%, respectively, immediately following the release of the report. According to Ostovskis from Wintermute, forthcoming months may witness similarly drastic market reactions in response to key economic indicators.
