(Kitco News) – Investors’ concerns about inflation and interest rates were eased in early trading on Wednesday after May’s consumer price index (CPI) came in flat, while the year-over-year reading came in at 3.3% – an improvement from April's 0.3% month-over-month increase and 3.4% annual reading.
Core CPI, which excludes food and energy, saw a 0.2% month-on-month rise and was up 3.4% annually.
Markets responded positively to the lower-than-expected readings as asset prices from cryptos to stocks and precious metals rallied while the U.S. dollar index (DXY) and U.S. 10-year Treasury yield declined.
Bitcoin's (BTC) price rallied 3.85% from support at $67,400 to touch $70,000, with bulls now looking to reclaim this psychologically important support level.
BTC/USD Chart by TradingView
At the time of writing, BTC trades at $69,853, an increase of 4.53% on the 24-hour chart.
All eyes are now on the Federal Reserve and the conclusion of the Federal Open Market Committee meeting, where the central bank will reveal its decision on interest rates and provide dot plot projections for future rates.
The CME FedWatch Tool shows that the market now sees a 71% chance for a rate cut in September, up from 53% yesterday. Investors now anticipate a range of one to two 25-basis-point cuts in 2024, down from the six cuts expected at the start of the year, according to Bloomberg data.
“No changes in U.S. monetary policy are expected at this week’s meeting but as always the rhetoric coming from the Fed will be parsed by the marketplace,” said analysts at Secure Digital Markets. “The market is eager for updates to the Fed's Summary of Economic Projections, which could shed light on the policy trajectory. Concerns have been rising among investors that the strong jobs report and persistent inflation may support a prolonged higher interest rate environment.”
“Historically, both rate cuts and holding decisions have significant impacts on asset flows and market prices,” noted analysts at Bitfinex. “For instance, past decisions to cut rates have typically resulted in increased asset prices and ETF inflows, as seen in the gold market. Similar patterns are expected in the cryptocurrency market. All eight of the last CPI and FOMC events have caused increased volatility, at least on an intra-day or intra-week basis. Since March, however, this volatility increase has been short-lived.”
“Central banks around the world have already started to cut rates, which suggests a broader trend towards monetary easing,” they added. “It seems clear that the Bank of England and the Federal Reserve will follow suit in the coming months. The global liquidity cycle indicates that money supply is likely to increase, which can support asset prices, including cryptocurrencies.”
Bitfinex analysts said their base case is that the Federal Reserve will hold interest rates unchanged. “Whether the Fed cuts rates or holds them, the implications for Bitcoin and ETF flows are significant,” they said. “A rate cut is likely to spur immediate bullish action, while a hold decision could result in a steadier but positive trend. Monitoring the Fed's future policy direction will be essential for predicting long-term market movements.”
In another positive development for crypto, former President Donald Trump expressed his support for Bitcoin miners, stating he would advocate for them if he returned to the White House.
“Trump's ambition is to mine all the remaining BTC in the U.S, which aligns with his pro-business policies and could profoundly influence the regulatory landscape for cryptocurrency mining,” noted analysts at Secure Digital Markets. “His backing arrives at a critical moment when the crypto industry is under heightened regulatory scrutiny, potentially leading to more favorable conditions for miners and fostering growth and innovation in the sector.”
Tapping into the angst surrounding the potential for a U.S. central bank digital currency, Trump added “Bitcoin mining may be our last line of defense against a CBDC.”
