On Wednesday, August 14, the U.S. Department of Labor will release the Consumer Price Index (CPI) for July, which is expected to show a sharp rise in inflation. As a result, many are speculating whether the Federal Reserve will be able to implement its planned rate cut at its next meeting.
The cryptocurrency industry and the rest of the global financial markets are anxiously awaiting next week’s U.S. Consumer Price Index inflation statistics. The Federal Reserve’s policy rate plans could be influenced by this statistic. This will provide clues about current inflationary pressures.
US CPI inflation may surge
Global financial markets, including the cryptocurrency industry, are eagerly awaiting the release of the U.S. CPI inflation data next week. The data will provide clues on current inflationary pressures, which in turn could affect the Federal Reserve’s policy rate plan decisions.
According to Wall Street forecasts, the inflation rate is expected to reach 0.2% in July, down 0.1% last month. Year-on-year, the inflation rate may remain at 3%, the same as last month.
Meanwhile, the market expects core CPI inflation, which excludes food and energy prices, to come in at 0.2%, up from 0.1% in June. However, on an annualized basis, core inflation is expected to fall to 3.2% in July from 3.3% last month.
Market participants are pessimistic as the monthly US CPI inflation data is expected to rise. Even if the inflation data increases slightly, it is unlikely to affect the central bank's decision. This is according to many market analysts, who dismiss such concerns. The cryptocurrency industry is expected to see significant volatility this week as investors prepare for the upcoming data.
Focus on US PPI
Another key indicator, the US PPI inflation data, will also be released next week. The Producer Price Index (PPI) is another data point that the Federal Reserve considers when setting its policy rate plan after the US CPI.
Meanwhile, the probability of a 25 basis point rate cut by the Fed at its September meeting is 51%, according to the CME Group’s FedWatch tool. Meanwhile, bets on a 50 basis point rate cut recently surged to 49% after weak jobs data stoked concerns that the U.S. economy could fall into recession.
Cryptocurrency markets brace for shock
The global cryptocurrency market has seen volatile trading recently due to concerns about the global economy. The Bank of Japan's interest rate hike weighed on market sentiment, triggering a massive sell-off in global stock and cryptocurrency markets. However, the Bank of Japan's consideration of a dovish policy has eased some concerns.
In addition, recent concerns about the US economy falling into recession have also hit market sentiment. Nevertheless, the market seems to be recovering recently after a sharp drop. For context, BTC prices fell to a low of $49,100 this week, then rebounded to the $62,000 mark but the current price fell to $58,000 due to increased selling pressure.
Meanwhile, Boston Federal Reserve Bank President Susan Collins recently commented on the upcoming US CPI inflation, saying that the central bank should start cutting interest rates now. She also mentioned that this decision will also depend on the last challenge, which is the inflation data to be released next week.
Bitcoin could benefit from rate cuts
Falling inflation could be good news for Bitcoin and Altcoin as it influences the Federal Reserve’s decisions.
The Fed hinted at a possible rate cut in September at its July monetary policy meeting. Analysts are currently divided on whether the cut will be a modest 0.25% or a larger 0.50%.
The latest forecast from the Federal Reserve Bank of Cleveland shows that the overall inflation rate (headline CPI) in July is expected to be 0.24%, and the core inflation rate excluding food and energy prices is expected to be 0.27%.
Some banks, such as ABN Amro and Citigroup, expect a 0.50% cut, while others, such as Goldman Sachs and Societe Generale, expect a smaller reduction of 0.25%.
The value of cryptocurrencies typically increases when the Federal Reserve lowers interest rates. For example, in March 2020, the Fed cut its official cash rate to zero amid the pandemic. Since then, the value of Bitcoin has soared, reaching an all-time high of $69,000 in 2021.
If the Fed cuts rates aggressively this time, we could see a sharp rally in Bitcoin price and test its resistance levels.
In simple terms
After a 0.1% drop last month, inflation is expected to rise by 0.2% this time. The Fed's policy rate plan may be affected by statistics. As the US Consumer Price Index data is about to be released, the cryptocurrency market should prepare for the impact. It is expected that the release of CPI data will trigger market volatility and increase market selling pressure. In the short term, mainstream currencies such as BTC will consolidate at $58,000. However, in the long run, CPI data may affect the Fed's policy rate plan decision, which will increase the value of cryptocurrencies.
