Lower inflation figures mark third consecutive monthly reduction, potentially signaling significant slowdown.
Key Takeaways
Lower-than-expected CPI data may increase crypto market liquidity and risk appetite.
Bitcoin faces potential volatility as it struggles to maintain its position above $58,000.
The US Consumer Price Index (CPI) inflation numbers coming below expectations today can boost liquidity for both equity and crypto markets, according to Jag Kooner, Head of Derivatives at Bitfinex. Yet, the concerns about Bitcoin (BTC) supply waiting to be dumped in the market could still keep investors at bay.
The CPI came at 3%, below the expectations of 3.1%, while the Core CPI, which excludes food and energy, also fell below the 3.4% expectations. Kooner highlights that this signals a more significant slowdown in inflation since it is the third consecutive monthly reduction.
“This could reinforce the market’s expectation of a rate cut in September (where Fed Fund futures puts the probability at 70% currently), boosting both equities and cryptocurrencies by increasing liquidity and risk appetite,” he explained.
Notably, this means that the next Fed meeting, set to happen between July 30th and 31st, won’t bring the long-awaited rate cut investors expect. Consequently, volatility could pick up as Bitcoin fights to stay above $58,000, which is its exponential moving average of 200 days (EMA 200). If BTC fails to hold convincingly, it might chase some lower price levels.
Nevertheless, Kooner highlights the possibility of favorable CPI numbers tipping Bitcoin to move along with risk assets, as it would support the narrative of slowing inflation and a potential rate cut.
“Investors will closely monitor Fed communications and market reactions to today’s CPI release and upcoming Fed meetings to gauge the alignment of BTC with equities. However, we believe that a single inflation print would not undo the supply overhang concerns for Bitcoin which would take some more time for the market to price in completely.”
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