Higher-than-expected inflation data preceded a correction on Tuesday morning that brought Bitcoin (BTC) below the $50,000 price level.
According to the Bureau of Labor Statistics, the US consumer price index (CPI) rose by 0.3% in January, a 3.1% increase year-on-year and a decline from 3.4% in December.
The numbers were hotter than the 0.2% that analysts were expecting, and expectations of a Fed rate cut in the coming months are now being challenged, pressuring risk assets like BTC and equities, which are also headed for the biggest daily correction of the year.
Peter Cardillo, chief market economist at Spartan Capital Securities, told Reuters the potential for rate cuts has likely been pushed further into the future.
“If this keeps up with another month or two of inflation staying high, you can kiss a June (rate cut) goodbye and we’re probably looking at September… It’s a hotter-than-expected report and it’s part of what the Fed has been alluding to when it says it’s too early to say that inflation has been beaten.”
The sell-off has consequently induced a surge in the dollar, with the dollar index (DXY) making new highs on the year.
According to the founders of on-chain analytics firm Glassnode, the dollar strength is being driven by expectations of a Fed cut being delayed. The analysts, who go by Negentropic on the social media platform X, say that convincing signs of cooling inflation will likely be the catalyst that brings strength back into Bitcoin.
“What’s behind the surge of the US Dollar?
USD ends another week on a high, notching its fourth consecutive week of gains, reaching above 104.00.
- The rally is fueled by delayed expectations for Fed easing, now projected for May or June.
- However, upcoming CPI data and Fed commentary could sway short-term outlook.
- Any signs of inflation nearing 2% could shift rate cut expectations, potentially impacting the DXY and paving the way for a BTC rally.
Conclusion:
As we await CPI data and Fed updates, the USD’s trajectory remains uncertain, with implications for both currency markets and assets like Bitcoin. Stay tuned for potential shifts ahead.”
At time of writing, Bitcoin is trading at $48,735, a 2.7% decrease on the day.
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