Crypto

Bitcoin Awaits U.S. CPI Data, 70% Chance of Fed Rate Cuts in September

Bitcoin's trajectory hinges on CPI report, with economists predicting a 3.1% year-over-year rise and potential Fed rate cuts.

By Bill Bullington

7/11, 03:01 EDT
Bitcoin / U.S. dollar
Bitcoin / US Dollar
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Key Takeaway

  • U.S. CPI data release is pivotal for Bitcoin's trajectory, with a 0.1% MoM and 3.1% YoY rise expected.
  • Traders see a 70% chance of Fed rate cuts in September, potentially boosting Bitcoin and other risk assets.
  • Bull steepening of the yield curve may signal economic contraction, historically leading to poor equity performance but increased interest in cryptocurrencies.

CPI Report's Impact on Bitcoin

The upcoming U.S. Consumer Price Index (CPI) report, scheduled for release at 12:30 UTC (8:30 ET) on Thursday, is poised to be a significant determinant of Bitcoin's market trajectory. Economists surveyed by Dow Jones anticipate a 0.1% month-over-month increase in the cost of living for June, following a flat reading in May. Year-over-year, the CPI is expected to rise by 3.1%. The core CPI, which excludes volatile food and energy prices, is forecasted to increase by 0.2% from May and 3.4% from June last year.

If these estimates hold true, it would signal continued progress towards the Federal Reserve's 2% inflation target, potentially setting the stage for a much-anticipated rate cut cycle this year. Such a development would likely be favorable for risk assets, including Bitcoin, which has been struggling to maintain a foothold above the $59,000 mark after recovering from July 5 lows of around $53,500.

Market Reactions and Expert Opinions

The CPI data is expected to be closely monitored, with significant market reactions anticipated. Wintermute, an algorithmic trading firm, noted in an email to CoinDesk, "CPI data will be closely watched, with markets expected to react significantly to this release. Analysts' optimistic outlook for late 2024 and 2025 hinges on the FOMC reducing policy rates, as lower rates typically increase liquidity, driving investors towards 'longer-tail' assets like cryptocurrencies."

The Federal Reserve has emphasized the need for further progress on the inflation front before reducing elevated interest rates. Fed Chair Jerome Powell reiterated this stance in his testimony to Congress on Tuesday, stating that the bank won't wait for inflation to cool to 2% before cutting rates. According to the CME's FedWatch tool, traders have priced in about a 70% chance of a Fed rate cut in September, with a rising probability of another cut in December.

Yield Curve Dynamics and Bitcoin

The U.S. Treasury yield curve's response to the expected soft CPI release could influence broader market sentiment, including Bitcoin. Slower inflation and increased rate cut bets can boost prices for the two-year note, sending its yield lower. Meanwhile, the yield on the 10-year note is likely to remain elevated due to concerns about larger budget deficits under a potential Trump presidency. This dynamic could result in a bull steepening of the yield curve, characterized by a widening spread between the yields on the 10- and two-year notes.

Historically, periods of bull steepening have coincided with economic contractions and risk aversion. The CAIA Association noted, "Typical bull-steepening periods were: 1990-1992, 2001, 2003, 2008, and 2020, and all were recessionary periods." Noelle Acheson, author of the Crypto Is Macro Now newsletter, observed that a sharp steepening has always preceded the beginning of a recession. Acheson added that the curve has recently steepened somewhat due to lingering political uncertainty in the U.S., which could imply a possible inflation uptick driven by tariffs and increased issuance to fund promised tax cuts under a Trump presidency.

Street Views

  • Wintermute, Algorithmic Trading Firm (Cautiously Optimistic on Bitcoin):

    "CPI data will be closely watched, with markets expected to react significantly to this release. Analysts' optimistic outlook for late 2024 and 2025 hinges on the FOMC reducing policy rates, as lower rates typically increase liquidity, driving investors towards 'longer-tail' assets like cryptocurrencies."

  • Noelle Acheson, Author of Crypto Is Macro Now Newsletter (Bearish on Equities during bull steepening periods):

    "A sharp steepening has always preceded the beginning of a recession... It also makes a Trump victory more likely in the interim, which implies a possible inflation uptick driven by tariffs and a flood of issuance to fund the promised tax cuts."