The cryptocurrency market saw a significant boost on Thursday, driven by U.S. core inflation data that slightly exceeded expectations, diminishing hopes for a significant rate cut by the Federal Reserve next week.
Bitcoin is set to break a two-week losing streak, with the BTCUSD rate climbing 3% on Thursday morning, surpassing $58,000, as investors reacted to August’s Consumer Price Index (CPI) report.
The headline CPI slowed to a 2.5% annual increase, below the expected 2.6%, marking its lowest level since February 2021. However, core inflation, which excludes food and energy, rose 0.3% on a monthly basis, surpassing forecasts of 0.2% and maintaining a high year-over-year rate of 3.2%, well above the Federal Reserve’s 2% target.
Anyway, that is positive news for the crypto space — digital assets are experiencing a much-needed boost after a sluggish August. While optimism is spreading across tokens, the real test lies ahead as the Federal Reserve meets next Wednesday to decide on interest rates.
The main question guiding markets — and crypto investors — is just how quickly the Fed will lower its benchmark interest rate as the economy continues to cool. Over the past month, traders have leaned toward an initial cut of 0.25%, with a 67% chance. Following the fresh inflation readout, the odds of a 0.25% cut increased to 85%.
This confidence helped lift digital assets, as lower interest rates make borrowing cheaper, allowing more funds to flow into riskier assets.
The second-largest cryptocurrency by market cap, Ethereum, also saw gains, although more modest, with a 1.3% increase to $2,360.
The global crypto market cap increased by 2.12% to $2.04 trillion, with total market volume rising 11.6% to $70.89 billion. Stablecoins made up $65.13 billion of this volume, or 91.87%.
The top tier of this digital asset class has become increasingly dependent on interest rates, especially after two major cryptocurrencies launched spot ETFs (exchange-traded funds), which have been gaining momentum.