Concerns surrounding inflation have once more taken the spotlight following the publication of the latest Producer Price Index (PPI) figures by the U.S. on October 11, 2024, for the month of September.
According to the latest data from the Labor Department, the PPI remained unchanged month-on-month, defying expectations of a 0.1% increase. However, on a yearly basis, the PPI registered an increase of 1.8%, marginally exceeding the anticipated 1.6%.
Likewise, the Consumer Price Index (CPI) data in the U.S. indicated ongoing inflationary pressures. The month-to-month CPI rose by 0.2%, aligning with figures observed in August and July. Year-over-year, inflation showed a slight decrease to 2.4%, down from the previous month’s 2.5%, yet it remained above the market forecast of 2.3%.
“The index for final demand less foods, energy, and trade services edged up 0.1 percent in September after increasing 0.2 percent in August. For the 12 months ending in September, prices for final demand, excluding food, energy, and trade services, rose 3.2 percent.” – U.S. Bureau of Labor Statistics
With both CPI and PPI figures indicating a resurgence in inflation, speculation is mounting regarding the Federal Reserve’s possible responses, particularly regarding the impact on Bitcoin (BTC) amid escalating inflationary concerns.
Treasury Yields and Dollar Response
Following the inflation data release, U.S. Treasury yields experienced a decline, with the two-year yield falling to 3.96% and the 10-year yield decreasing to 4.09%. The U.S. Dollar Index also saw a dip, briefly dropping below the 102.80 mark.
The rise in Core CPI for the first time in a year and a half could signify a shift in the Federal Reserve’s strategy. The Kobeissi Letter noted this sentiment in a tweet on October 11, highlighting that inflationary forces appear to be gaining traction, particularly as the PPI saw its first increase since June.
Bitcoin’s Reaction to Rising Inflation Data
Currently, Bitcoin is trading around $62,000; however, the latest inflation data might introduce significant volatility. Should the Federal Reserve tighten its monetary policy in response, this could lead to decreased market liquidity, potentially causing a short-term dip in Bitcoin’s value.
A drop below the important psychological level of $60,000 could be on the horizon if the Fed opts for a more aggressive approach during its upcoming meeting.
Despite the likelihood of short-term declines, Bitcoin’s long-term appeal as an inflation hedge remains strong, with rising prices likely encouraging more investors to consider it a safeguard against the devaluation of traditional currencies.
Short-term Dip: Inflation Could Trigger a Sell-off
As inflation trends upwards, the Federal Reserve might adopt a more hawkish stance, potentially leading to a slowdown or cessation of rate cuts to combat inflationary influences. This shift could curtail liquidity in the financial markets, possibly prompting a sell-off in more volatile investments like Bitcoin.
At present, Bitcoin is priced at approximately $62,216, reflecting a 24-hour gain of 2.5%. Although this suggests some stability, overall market sentiment remains cautious after the recent inflation report.
What’s Next for Bitcoin?
As inflation continues its upward trajectory, investors are left to contemplate whether the Fed will slow or halt its rate cuts. The CME Group’s FedWatch Tool indicates an 84% likelihood of a 0.25% rate cut in November, but with inflation remaining elevated, the chances of maintaining current rates are surging.
At this juncture, Bitcoin’s price stability persists, yet investors must remain alert for potential market fluctuations, as the Federal Reserve’s decisions are likely to influence Bitcoin’s near-term direction. If the Fed pursues a more aggressive stance, Bitcoin may face downward pressure and test significant support levels.
Finbold has conducted a thorough technical analysis and AI-driven forecast for Bitcoin’s year-end price, drawing insights from leading analysts.
The analysis suggests possible downside risks for Bitcoin, signaling that the cryptocurrency could encounter considerable pressure in the upcoming months. This aligns with broader evaluations emphasizing the necessity for caution as inflation continues to shape the market and Bitcoin’s future trajectory.
In conclusion, the rising CPI and PPI inflation data present a precarious situation for Bitcoin. While the cryptocurrency may face short-term fluctuations if the Federal Reserve tightens its monetary policy, its role as an inflation hedge remains strong, attracting investors concerned about inflationary threats.
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