Summary:
Bitcoin's price dipped to $56,500, down 1.5% after inflation report.
August CPI rose by 2.5%, lower than the 2.6% expected.
Predicted $50,000 price difference for Bitcoin based on election outcomes.
Market anticipates a 0.25% rate cut from the Fed next week.
Labor market conditions are impacting Bitcoin's price significantly.
The price of Bitcoin experienced a slight decline on Wednesday following a report indicating that U.S. consumer prices rose less than anticipated in the 12 months leading up to August. The Consumer Price Index (CPI) increased by 2.5% on an annual basis, as reported by the Bureau of Labor Statistics (BLS). Economists had expected a 2.6% annual rise.
On a monthly basis, inflation rose by 0.2% in August, consistent with July's increase. Prior to that, consumer prices had decreased by 0.1% in June, marking the first negative CPI since 2020.
Following the inflation report, Bitcoin's price dipped to $56,500, reflecting a 1.5% decrease over the preceding day. Other cryptocurrencies, including Ethereum and Solana, also saw declines, priced at $2,300 and $130, respectively.
Tom Dunleavy, a partner at MV Global, remarked, "All in all, it’s a very positive report now that leads to a 25-basis-point cut now being very likely for next week. I think the near-term implications for Bitcoin are fairly muted." He suggested that the upcoming presidential election in November might have a more significant impact on Bitcoin’s price than monetary policy.
Analysts from Bernstein predicted a potential $50,000 difference in Bitcoin’s price based on the election outcome.
The new U.S. inflation data will be crucial as the Federal Reserve gears up for its policy meeting next week, with expectations of a series of rate cuts aimed at achieving its 2% inflation goal. The market is particularly focused on the pace at which the Fed will lower its benchmark interest rate.
In the past month, traders indicated a 67% chance of an initial 0.25% cut, which rose to 85% following the recent inflation report. Over the last year and a half, the Fed has raised interest rates nearly a dozen times to combat high inflation.
The state of the U.S. labor market also influences Bitcoin's price. For instance, Bitcoin's value dropped to $53,300 last week after a U.S. jobs report fell short of expectations, with 142,000 jobs added in August compared to the anticipated 160,000.
While lower borrowing rates are generally seen as beneficial for risk assets like Bitcoin, analysts from Bitfinex warned of potential short-term headwinds due to a "sell the news event" effect.
Federal Reserve Board Governor Christopher Waller acknowledged the challenges in timing rate cuts, indicating that smaller cuts might better signal the Fed's intentions to the market. He stated, "I do not expect this first cut to be the last" and emphasized the need for a cautious approach to avoid alarming the markets.
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