Bitcoin’s recent ascent was abruptly halted as the latest U.S. inflation data surpassed expectations, igniting concerns over the Federal Reserve’s next moves. After reaching a new all-time high (ATH) of $72,709, the BTC price fell more than 3%, dropping below $70,000 shortly after the U.S. Consumer Price Index (CPI) report was released Tuesday morning.
The CPI, a key measure of inflation, rose 3.2% year over year last month, accelerating from January’s 3.1% pace, the government announced. This increase was slightly above the anticipated 3.1%, stirring unease among investors who had hoped for a more favorable report. Even more telling was the core CPI rate, which excludes volatile food and energy prices, ticking down only slightly to 3.8% from January’s 3.9% but still above the forecasted 3.7%.
Month-over-month figures also painted a picture of persistently high inflation, with the CPI and core CPI both rising by 0.4%, the former meeting and the latter exceeding expectations.
This inflationary pressure has cast a shadow over the cryptocurrency market, particularly affecting Bitcoin, which had shown signs of recovery after a sluggish weekend. The drop following the CPI announcement highlights the digital currency’s sensitivity to macroeconomic indicators, particularly those influencing interest rate expectations and monetary policy.
Jyotsna Hirdyani, South Asia Head at Bitget, pointed out the critical link between U.S. inflation data and market dynamics, noting that the anticipation of the Federal Reserve’s decisions on interest rates has been a significant driver of market sentiment.
“On the macro level, the U.S. CPI Inflation announcement could stir up the market as investors still expect rate cuts but the Fed’s stance on interest rates is still uncertain,” Hirdyani commented.
Entering 2024, market participants had initially expected the U.S. Federal Reserve to begin rate cuts as early as March, with projections indicating five or six reductions throughout the year. However, the resilient economic growth coupled with inflation rates persistently hovering above the Fed’s 2% target have led to a recalibration of these expectations. The CME FedWatch Tool now suggests that the anticipated timing for the onset of rate cuts has been deferred to the summer, reflecting growing uncertainty regarding the central bank’s policy trajectory in the face of sustained inflation.
This latest CPI report thus not only impacts the immediate trajectory of Bitcoin but also sets a cautious tone for financial markets at large. As investors recalibrate their expectations in light of the inflation data, the coming weeks, particularly the Federal Reserve’s March meeting, will be crucial in determining the direction of both traditional and digital asset markets.
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