Following the release of the US Consumer Price Index (CPI) data, cryptocurrency markets have stabilized. This data strengthens the likelihood of a 25 basis point rate cut in September.
Inflation Data
According to data from the US Department of Labor, the year-over-year inflation rate rose to 2.9%, in line with expectations. Core inflation remained steady at 3.1%. Monthly headline CPI increased by 0.4%, exceeding July's increase of 0.2% and slightly surpassing the forecast of 0.3%. Core inflation rose by 0.3% month-over-month, which also aligns with forecasts.
Fed Rate Cut Expectations
Soft inflation data has heightened expectations that the Federal Reserve might change policy. According to Polymarket data, the probability of a 25 basis point cut in September has risen to 88%, while the likelihood for a more aggressive 50 basis point cut has decreased. The Fed last cut rates by 25 basis points to a range of 4.25%-4.50% on December 18, 2024.
Impact on Cryptocurrency Market
Recently, there has been a notable influx into spot crypto ETFs. Blockhead co-founder Timothy Misir reported net inflows of $757 million into spot Bitcoin ETFs and $172 million into Ethereum funds on September 10th. He also stated that "another soft inflation data release could accelerate current risk appetite." Analysts suggest that a daily close of Bitcoin above the $113,000–$113,500 range could pave the way to $118,000, while the support zone at $109,000–$107,000 could be retested.
The current inflation data and reduced likelihood of a strict Fed policy could positively influence the cryptocurrency market, reinforcing the idea that cryptocurrencies may act as a hedge against inflation.
