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Wednesday afternoon saw a boost in investor expectations for interest rate cuts as the lackluster US Consumer Price Index (CPI) data was released, resulting in a rise in the financial markets.
Data provided by the US Bureau of Labor Statistics showed that the “core” CPI, which excludes food and energy prices, rose by 3.6% year-on-year. This data was consistent with market predictions and showed a slight cooling compared to the 3.8% increase in March. The month-on-month CPI for April was 0.3%, which was lower than the expected 0.1%.
This is the first time in over four months that the CPI has met or fallen below market expectations, leading traders to view it as a positive signal for potential interest rate cuts before the end of the year.
Data from the CME FedWatch tool shows that after the release of the CPI, the market currently expects a 70% chance of the Federal Reserve starting to cut interest rates at the September meeting, compared to 45% last month.
Benefiting from the positive impact of the low CPI, the S&P, Dow Jones, and Nasdaq indices all reached or came close to historic highs on Wednesday, closing with gains of 1.17%, 0.88%, and 1.40% respectively.
According to Bitpush data, Bitcoin experienced an upward trend on Wednesday, surging from a low of $61,315 to a high of $66,420 in the afternoon. At the time of writing, the BTC trading price was $66,035, representing a 7.21% increase in the past 24 hours.
Under the momentum of Bitcoin, almost all of the top 200 tokens in terms of market capitalization saw an increase on Wednesday. Livepeer (LPT) performed the best with a 20.8% increase, followed by Axelar (AXL) and GMX (GMX) with gains of 18%. Ribbon Finance (RBN) experienced the largest decline, falling by 21.5%, while Pepe (PEPE) and Starknet (STRK) fell by 2.6% and 1.9% respectively.
Currently, the overall market capitalization of cryptocurrencies is $2.38 trillion, with Bitcoin’s dominance rate at 54.7%.
However, despite the positive market response to the CPI data, Youwei Yang, Chief Economist and Vice President of BIT Mining, warned that it is too early to declare victory in terms of inflation progress.
In a report, she stated, “Although loose policies have been implemented, and the Consumer Price Index (CPI) inflation rate has reached the expected 3.4%, the current global economic situation is still close to a dangerous scenario of mild stagnation. Today’s policymakers seem to underestimate the risk of stagnation, echoing the situation of the 1970s, although extreme inflation rates of that era have not occurred.”
She added, “Despite these risks, many investors and policymakers remain overly optimistic, as evidenced by historically high price-to-earnings ratios in many major market sectors. When the market faces potential risks, cryptocurrencies are always the first to react, so they have been declining in the past few months, despite the seemingly worrying false prosperity brought by AI-driven stock growth.”
Bitfinex analysts also expressed concerns, warning that the decline in CPI does not guarantee that the Federal Reserve will lower interest rates.
They stated, “Investors see this as a bullish shift, as it marks the first decline in the Consumer Price Index (CPI) inflation in the past three months, and after the Federal Reserve announced its intention to gradually reduce quantitative tightening policies. In the past two months, the CPI has formed a local top, so this is seen as favorable for risk assets, but it has had the opposite effect. However, our inflation rate is still above 3%, and yesterday’s PPI inflation data showed consecutive monthly increases for the third month, so although the decline in inflation data is good news, investors will have to wait and see if the Federal Reserve considers it positive enough to cut interest rates.”
Leena ElDeeb, Research Assistant at 21Shares, stated, “CPI alone is not sufficient to convince the Federal Reserve to cut rates, especially considering that the data is still far above the target of 2%, as expressed in the FOMC meeting two weeks ago. The hope for rate cuts in the short term is becoming slim.”
ElDeeb warned, “Due to the lingering uncertainty about interest rate cuts, the recovery may be slow. Typically, higher interest rates reduce the attractiveness of risk assets such as technology stocks and Bitcoin, as investors can obtain substantial returns from safer options such as US Treasury bonds. This prompts short-term investors to turn to traditional markets.”
ElDeeb added, “However, despite the short-term impact on the market, many investors have a long-term view of Bitcoin, seeing it as a global asset that can protect against currency depreciation and economic instability. While the Fed’s policies may trigger short-term volatility, they will not fundamentally change Bitcoin’s long-term trajectory.”
She concluded, “Therefore, Bitcoin currently holds a unique position as a risk-bearing and risk-mitigating asset, leading to unique market dynamics.”
Dan Tapiero, CEO of investment firm 10T Holdings, believes that if Bitcoin can regain support at $65,000, its price may continue to soar by more than 45%. He stated on the X platform, “Breaking $65,000 will take it straight to $90,000…and then more, a very clear horizontal flag consolidation is about to complete.”
Market analyst Mustache agrees with Tapiero’s speculation and pointed out on Wednesday that “Bitcoin’s weekly Stoch RSI has just crossed bullish,” indicating that “the biggest trend is about to come.”
