(Kitco News) – The latest Consumer Price Index (CPI) inflation report was a ‘sell the news’ development for the crypto market as prices turned negative on the one-hour chart after core CPI came in as expected, showing the pace of inflation continued to cool.
While prices continue to rise, the pace has slowed, with consumer prices rising 2.9% year-over-year (y/y) in July, the first sub-3% print since 2021. Core CPI rose 3.2% y/y, also aligning with forecasts by Wall Street.
“The CPI being in line with expectation is an indicator that the Fed will likely proceed with a rate cut in September,” said analysts at Bitfinex. “This aligns with the broader market sentiment that inflation is no longer the primary concern, and the focus can shift towards supporting economic growth.”
“A rate cut in this environment would likely be seen as a positive move by the market, reinforcing the bullish outlook for Bitcoin and other risk assets,” they added. “This expectation of a rate cut could lead to a sustained rally in both the cryptocurrency market and related ETFs as investors seek to capitalize on a more accommodative monetary policy.”
This outlook was echoed by Aurelie Barthere, Principal Research Analyst at Nansen, who also sees the Fed focusing on economic growth moving forward.
"Overall the disinflation trend, visible since Q2 this year, is intact,” Barthere said in a note shared with Kitco Crypto. “It is especially impacting the past drivers of strong inflation, namely Services ex-energy ex-shelter. ‘Supercore’ services inflation (the metric monitored and quoted many times by Fed Chair Powell) was 2.0% on a 3m3m SAAR basis in July, down from 3.9% in June and 6.2% in May. This is a sharp deceleration.”
“This leaves the Fed the freedom to cut rates this year,” she added. “The Future markets expect 100bps of Fed rate cuts by December 2024, we see 3x25bps or 75bps as more probable, in case real growth does not weaken sharply.”
“Inflation is no longer the main worry for the Fed or markets, real growth is now at the forefront,” Barthere concluded. “For equities and crypto to recover further, more good news around the US real economy, especially the consumer, is needed. US core retail sales data, released later this week, will be an important data point to shape the real growth narrative.”
Data provided by TradingView shows that Bitcoin's (BTC) price was creeping higher in the lead-up to the CPI release, topping out at $61,815 before experiencing a sharp downturn that dropped King Crypto to $58,850.
BTC/USD Chart by TradingView
Dip buyers stepped in at that point to halt the downtrend, and at the time of writing, Bitcoin trades at $59,686, an increase of 0.32% on the 24-hour chart.
“The cryptocurrency market added 2.2% in the last 24 hours to reach $2.14 trillion, a fresh attempt to climb into the upper half of last month's trading range from where last week's sell-off was intensified,” said Alex Kuptsikevich, senior market analyst at FxPro. “Over the past 24 hours, the macroeconomic background has been favorable for risk appetite thanks to slowing producer prices and New Zealand's key rate cut.”
“Bitcoin remains at arm's length from the $61K level, continuing to test the 50-day moving average and adding 2.5% in 24 hours,” he added. “We assume a high correlation between Bitcoin, the entire crypto market and the dynamics of the stock market. Data supporting the Fed's imminent easing of monetary policy may encourage the bulls to overcome the short-term downtrend and give the green light to rise all the way to $66K. Nevertheless, a new sell-off momentum is still the prevailing scenario, with a potential pullback to $55K.”
Analysts at Bitfinex said that despite the initial negative reaction, “A dovish shift in monetary policy is bullish for risk assets like Bitcoin.”
“With inflation concerns easing, the market could see a surge in liquidity as investors anticipate lower interest rates, which generally makes speculative assets more attractive,” they said. “Bitcoin is likely to experience upward momentum as the prospect of a rate cut becomes more tangible.”
“The key resistance level between $64K-$65K, previously influenced by short-term whale activity, could be tested,” they noted. “If the market perceives the CPI data as a green light for the Fed to cut rates, Bitcoin could break through this resistance, triggering a bullish trend. However, if whales begin selling as the price approaches this critical level, we might see some temporary selling pressure before any sustained breakout.”
