A soft US inflation report later Wednesday will probably bode well for risk assets, including Bitcoin (BTC). But those who expect bullish fireworks can be disappointed.
The Labor Department announces January’s report for the Consumer Price Index (CPI) Wednesday at. 13:30 UTC. It is expected to show that the cost of living increased by 0.3% month to month in January, which slows down from December’s increase of 0.4%, according to Reuters estimates traced by FXSREET. The annual number is expected to match December 2.9% reading.
The core inflation striping out the unstable food and energy component is expected to have increased to 0.3%month-over-month from 0.2%, resulting in an annual reading of 3.1%, down from December’s 3.2 %.
Lower than expected data, especially the core figure, is likely to strengthen the expectations of additional Federal Reserve (Fed) Interest Rates, which can lead to lower government yields and a weaker dollar index, which ultimately increases demand for more risky assets. According to CME’s FedWatch tool, the market is currently estimating a 54% chance that Fed will either reduce interest rates once or not at all this year.
While a potential adaptation in bold -rate cuts could lift BTC, it is unlikely to be the only catalyst for an outbreak from the ongoing consolidation between $ 90,000 and $ 110,000.
This is due to forward -looking market metrics, which indicates higher inflation in the coming months in the midst of trade war’s fears, which suggests that Fed may have a limited window to implement aggressive rate cuts.
Data Tracked Mott Capital Management shows that two-year inflation swaps have risen to almost 2.8%, the highest since the beginning of 2023. The five-year-old swap exhibits a similar trend. Higher inflation swaps indicate that the market expects inflation rates to rise in the future, causing investors to pay a higher premium to protect themselves from potential power loss by entering into swap contracts tied to CPI.
In other words, the ongoing Uptick in these measurements indicates that the progress of inflation against Fed’s 2% FEDs has stopped and the price pressure is likely to rise in the coming years, probably due to Trump’s duty.
Plus, some investment banks believe that a soft CPI reading will not see that Fed is moving away from its Hawkish rate guidance. In his testimony to Congress on Tuesday, President Jerome Powell said the central bank is not busy reducing the rates.
“We do not expect the progress of inflation to be enough to promote further interest rate recounts from Fed this year,” said RBC’s weekly note, adding that January’s report will show limited relief in price pressure.
Blackrock said inflation in the sustained services will prevent them from being fed from cutting interest.
“We get our CPI for January this week. Even when December’s CPI report showed signs of inflation pressure, pay growth above the level that would give inflation back to Federal Reserve’s 2% target, in our opinion. We see sustained sustained service inflation that forces the bold to keep the rates higher for a longer period of time, ”Blackrock said.
Finally, BTC may get closer to the lower end of its $ 90k-$ 110K trading area if the CPI printing is hotter than expected.
