As US employment dramatically deteriorates, tensions are escalating between the Trump administration and the Federal Reserve regarding interest rate cuts. The interest rate outlook for the next three months is fluctuating with daily economic and employment indicators. The market is showing extreme sensitivity.
The volatility in the cryptocurrency market last week began with the ISM Services Purchasing Managers' Index (PMI) released on the 5th. This indicator signaled a sluggish US service sector. Additionally, it reported that since the start of Trump's 'trade war' in April, service sector prices have risen while employment has decreased.
The situation where prices are rising while employment is declining is called stagflation. This scenario is considered one of the most challenging economic crises, as it prevents central banks from either lowering or raising interest rates. Market concerns have intensified that the Trump administration's tariff policies might be pushing the US into stagflation. Simultaneously, the probability of interest rate cuts this year has reduced from three to two.
The probability of Federal Reserve interest rate cuts can be confirmed on FedWatch, a site provided by the CME Group. Last week, cryptocurrency and most risk assets sensitive to market liquidity danced to the changing interest rate outlook. When the interest rate cut probability was two times this year, prices declined, and when it changed back to three times, prices rose again.
The week's final news was the appointment of Steve Mnuchin, Chairman of the White House Council of Economic Advisers, to fill the vacant seat of Federal Reserve Board member Adriana Kugler. Mnuchin is one of the closest economic advisers to President Trump. The market interpreted this appointment as a strong indication of Trump's desire for interest rate cuts. The US stock market closed maintaining the forecast of three interest rate cuts this year.
ETH's surprising rise over the weekend gained momentum from an unexpected statement by Federal Reserve Vice Chair Michelle Bowman. At a Kansas Bankers Association speech, she explicitly stated that "three benchmark rate cuts are necessary". She emphasized the need for preemptive measures to prevent further weakening of economic activity and employment conditions based on recent employment market data.
After Vice Chair Bowman's statement, ETH price temporarily exceeded $4,300. In Korean won, it rose to 59,710,000 won per coin, surpassing its all-time high.
Tom Lee: "Buying ETH will be the most important trade in the next 10 years"
While employment and price indicators were creating large waves in the macroeconomy, cryptocurrency market participants were actively moving beneath them.
The most unexpected movement last week came from BlackRock, the 'big player' in the US spot ETF industry. On the 4th, BlackRock withdrew significant funds from both the Bitcoin spot ETF (IBIT) and Ethereum spot ETF (ETHA), creating market uncertainty.
On that day, $292.21 million was net outflowed from IBIT in a single day. Such a large amount of funds leaving IBIT had not occurred since May 30th. The market predicted Bitcoin prices could fall back to the $111,000 range.
From the Ethereum spot ETF ETHA, $375 million was net outflowed. This represents a 3% reduction in BlackRock's Ethereum holdings. With massive fund withdrawals from BlackRock ETFs, the 21-day consecutive net inflow record for Ethereum spot ETF was interrupted.
Fortunately, the ETF fund net outflow stopped after two days. Between the two major coins, Ethereum recovered faster. The strategic ETH purchases by US-listed companies acted as a catalyst for Ethereum's price recovery. Bitmain renewed its record as the world's top ETH holding listed company by holding over 830,000 ETH.
Tom Lee, famous Wall Street investment guru, emphasized that buying Ethereum will be the most important trade he will make in the next 10 years. Jeffrey Kendrick, Head of Digital Assets Research at Standard Chartered Bank, also explained that stocks of Ethereum buying companies could be a more attractive investment than Ethereum spot ETF.
Bitcoin reclaimed the $117,000 range thanks to Trump's administrative order opening the retirement pension market, but did not show a strong rise compared to Ethereum.
Overall for the past week, Bitcoin price rose only 5.44%. However, Ethereum showed a 25.01% weekly price increase. SOL, with a lower market cap than ETH, remained at a 15.04% increase. It was a week where Ethereum clearly demonstrated its presence.
July 12 CPI, Must Be Low to Maintain Coin Prices
This week is expected to follow a similar pattern to last week. The market's focus is on whether the Federal Reserve will implement three interest rate cuts this year and if a definitive rate cut will emerge at the September Federal Open Market Committee (FOMC).
In this context, the July US Consumer Price Index (CPI) on the 12th is crucial. If the actual CPI significantly exceeds Wall Street expectations, the interest rate cut forecast for the remaining half of the year is likely to become uncertain again. In such a case, the hard-earned cryptocurrency prices would be adjusted downward.
The Producer Price Index (PPI) on the 14th night and the US July Industrial Production and Retail Sales indicators on the 15th are also worth watching. They will provide evidence to confirm whether the US economy is contracting.
The statements of Federal Reserve officials, which have a significant impact on the September FOMC interest rate decision, are also important. On the 13th (Wednesday), Austin Goolsbee, President of the Chicago Federal Reserve Bank, will attend a monetary policy luncheon hosted by the Springfield Chamber of Commerce. If statements are made about the current economic assessment or future interest rate direction, they could affect the market.
According to the Fed Watch data, as of 2 AM on the 11th, the probability of a 0.25%p rate cut at the September FOMC is 88.9%. After the weekend, when the benchmark interest rate futures market opens, this probability will slightly increase due to the effect of Vice Chair Bowman's remarks. However, it is difficult to be certain whether this probability level can be maintained by the end of this week. We wish our readers a successful investment this week as well.
