Bitcoin Jumps On US Inflation Data

The price of Bitcoin (ETH), the leading cryptocurrency, surged to an intraday high of $24,010 on the Bitstamp exchange at 12:48 a.m. UTC. Ethereum (ETH) and other top altcoins also spiked sharply higher. Crypto markets responded favourably after the slower than expected CPI reading, which takes pressure off the Federal Reserve to hike rates aggressively at the September meeting.

US inflation slowed last month, possibly strengthening a widely held narrative that the worst of consumer-price increases is behind the economy. Bitcoin jumped 2% and Ethereum 7% in the minutes after the report, signaling relief on the part of crypto traders that the Federal Reserve might be able to relax its aggressive approach to tightening monetary conditions.

The most recent CPI data means that the US Federal Reserve may now slow down the pace of rate hikes. While the most recent CPI data is a sign for the US central bank, it is still unlikely to dramatically affect its current policy. This was a necessary print for the Fed, but inflation has to come down much more.

CPI surged 8.5% in July on a year-over-year basis, though it was unchanged from the previous month, partly thanks to lower energy prices, a report by the Bureau of Labor Statistics showed. The annual figure compared to an average estimate of 8.7% in a survey of economists by FactSet.
Stripping out food and energy prices because of their strong volatility, core CPI remained unchanged at 5.9% over the past 12 months, slightly missing expectations of 6.1%.

Most cryptocurrencies across the board declined on Tuesday in anticipation of the report, with bitcoin dropping about 4% to 23,100k after rising above $24k on Monday. Ethereum fell more than 5%.

Traders are now betting on a 65% chance that the Fed will hike interest rates by 50 basis points in September, compared with 32% just one day ago. Recently, traders had been seeing a 75 basis-point hike as the likelier scenario after the jobs report last week showed that the economy is still in very good shape to sustain more rate hikes.

Several central bankers have signaled that they will continue to tighten until they see inflation come down significantly.

The Fed will be cheered by the news, especially the fact that core inflation was also lower than expected. They will still need to hike rates at their next meeting in September, but this reduces the risk of another 75 basis-point move and, going forward, we might just see markets act a little calmer than they have to date.