As we have reported as Kriptokoin.com, the US Consumer Price Index (CPI) inflation data for June is scheduled to be released on Wednesday, and if last month’s CPI data is released, it may cause fluctuations in all crypto money markets, especially Bitcoin.
Major cryptocurrencies like Bitcoin, SHIB, ETH await US CPI data
Investors will remember that the release of a hotter-than-expected May CPI report in mid-June at the time triggered a crash in the prices of stocks, bonds and cryptocurrencies such as Bitcoin (BTC), Shiba Inu (SHIB), Ethereum (ETH). This was because the data forced the US Federal Reserve to increase the rate of interest rate increase from 50 basis points at the previous meeting to 75 basis points at its June policy meeting. The minutes of the Fed’s June meeting last week confirmed that the central bank has accelerated interest rate hikes due to the “deterioration” in the short-term inflation outlook, and that the central bank is ready to increase interest rates by 50 or 75 basis points at the upcoming July meeting.
Long-term U.S. bond prices rose substantially to their June levels before the sales-spiking CPI data were released as bond investors priced in a weaker U.S. economic outlook. But stocks and cryptocurrencies like Bitcoin are nowhere near returning to pre-June CPI data release levels. Indeed, markets remained focused on the short-term outlook for Fed policy, despite growing concerns that the U.S. economy could enter recession and money markets pricing in a series of Fed rate cuts from the second half of 2023. Wednesday’s CPI data are expected by analysts to show annual headline rise in prices reaching 8.8 percent, a multi-decade high.
Expected data poses downside risks to Bitcoin and other cryptocurrencies
It is seen that the headline price index increased by more than 1.0 percent month-on-month for the second consecutive month to reflect rising gas prices. If the upcoming CPI data shows further acceleration in US price pressures, though not as feared, it will keep the Fed on track to raise interest rates another 75 basis points later this month. While the Fed has expressed concern about a slowdown in US growth, last week’s June jobs data and ISM Services PMI survey data (both strong) will ease fears of an imminent recession.
Analysts think Wednesday’s CPI data pose downside risks to cryptocurrency prices. An upside inflation surprise will likely increase Fed tightening bets, which will put a large weight on stocks and risky assets like Bitcoin and other cryptocurrencies, as happened in June. A CPI report, largely in line with expectations, would indicate further increases in price pressures and solidify short-term Fed tightening expectations. While the recent drop in crypto prices since last Friday likely reflects that this has already been priced in to some extent, further downsides should not be ruled out.
Price pressures may already have peaked
PCE inflation data, an alternative US inflation measure favored by the Fed, was released in June, just weeks after the core measure of CPI data dropped to a six-month low. This has added to hopes that US price pressures may have already peaked. So investors will be watching the key metrics in Wednesday’s CPI report for further evidence of supposedly peak inflation. The annual rate of core price increases fell to 5.7 percent, the lowest level since January. If it falls further, markets may begin to lower the Fed’s tightening bets this year and for 2023.
While Wednesday’s CPI data will likely reaffirm expectations for rapid short-term tightening from the Fed, some are hopeful that the June US Retail Sales data, scheduled for release on Friday, may contain evidence of a cooling in consumer demand. Headline Retail Sales rose 0.8 percent month-on-month in June, according to a Reuters survey of economists. If monthly headline inflation comes in at 1.1 percent as expected, that would mean a 0.3 percent drop in inflation-adjusted spending. This would mark a second consecutive month of decline in real spending after inflation-adjusted retail sales fell 1.3 percent month-on-month in May.
Any downside in stocks could turn into weakness in the cryptocurrency markets
Many feel that the current suffering of US consumers is a leading indicator that the economy may enter a short-term recession. If this week’s data leads to serious recession bets, the market may begin to finish the Fed’s tightening bets for the end of 2022/2023. This could give cryptocurrencies some respite, even as they get emotional by the warm CPI numbers on Wednesday. Investors are concerned about how weakening growth may affect earnings and will therefore be watching developments closely. Any downside in stocks related to low earnings could turn into weakness in crypto.
Bitcoin (BTC) is currently trading just under $20,000 and is testing a key support trendline connecting mid-June, late-June and early-July lows. If this week’s macro developments cause a breakdown in crypto sentiment and Bitcoin falls below this uptrend, it risks quickly retesting late June lows of $18,000 and potentially even retesting annual lows of mid-$17,000.
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