Inflationary concerns have once again taken center stage following the release of the latest Producer Price Index (PPI) data by the U.S. on October 11, 2024, for September.
As per the most recent information from the Labor Department, the PPI was unchanged month-over-month, contrary to predictions of a 0.1% rise. However, on an annual basis, the PPI saw an increase of 1.8%, slightly surpassing the anticipated 1.6%.
In a similar vein, the Consumer Price Index (CPI) data in the U.S. revealed persistent inflation. The month-to-month CPI was recorded at 0.2%, which is consistent with figures from August and July. Year-over-year, inflation slightly eased to 2.4%, down from 2.5% in August, yet still above the market forecast of 2.3%.
“The index for final demand less foods, energy, and trade services inched up 0.1 percent in September after rising 0.2 percent in August. For the 12 months ended in September, prices for final demand less foods, energy, and trade services increased 3.2 percent.”-U.S. Bureau of Labor Statistics
With both CPI and PPI data suggesting a revival in inflation, there is increasing speculation regarding the Federal Reserve’s potential response, especially concerning how Bitcoin (BTC) might react to the mounting inflationary pressures.
Treasury yields and Dollar response
In the wake of 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 dropping to 4.09%. The U.S. Dollar Index also saw a decrease, momentarily falling below the 102.80 level.
The uptick in Core CPI for the first time in a year and a half could indicate a change in the Federal Reserve’s approach. The Kobeissi Letter echoed this notion in an October 11 tweet, pointing out that inflationary forces are gathering momentum, especially with the PPI rising for the first time since June.
Bitcoin’s reaction to rising inflation data
Currently, Bitcoin is trading near $62,000; however, the recent inflation figures may create notable volatility. If the Federal Reserve tightens its monetary policy in response to inflation, this could lead to a reduction in market liquidity, potentially resulting in a short-term decline in Bitcoin’s value.
A fall below the critical psychological threshold of $60,000 might be on the horizon if the Fed adopts a more aggressive stance at its upcoming meeting.
Despite the potential for temporary declines, Bitcoin’s long-term perspective as a hedge against inflation remains robust, with rising prices possibly encouraging more investors to see it as a safeguard against the erosion of traditional currencies.
Short-term dip: Inflation could trigger a sell-off
As inflation trends upward, the Federal Reserve may take a more hawkish stance, which could mean a slowdown or halt in rate cuts to address inflationary influences. This change may reduce liquidity in the financial markets, potentially triggering a sell-off in riskier investments like Bitcoin.
At present, Bitcoin is trading around $62,216, reflecting a 24-hour increase of 2.5%. While this indicates some stability, overall market sentiment remains cautious following the recent inflation report.
What’s next for Bitcoin?
As inflation continues to rise, investors are left pondering whether the Fed will slow or pause its rate cuts. The CME Group’s FedWatch Tool indicates an 84% chance of a 0.25% rate reduction in November, but with inflation remaining high, the probability of rates staying the same is increasing.
At this moment, Bitcoin’s price stability is holding, but investors should be vigilant for potential market changes, as the Federal Reserve’s actions are likely to influence Bitcoin’s immediate direction. Should the Fed take a more hawkish approach, Bitcoin may experience downward pressure and could test significant support levels.
Finbold has provided a thorough technical analysis and AI-driven forecast for Bitcoin’s year-end price, drawing on insights from leading analysts.
The analysis points to possible downside risks for Bitcoin, suggesting that the cryptocurrency might face substantial pressure in the months ahead. This aligns with broader assessments that highlight the need for prudence as inflation continues to impact the market and Bitcoin’s path forward.
In summary, the rising CPI and PPI inflation figures create a tenuous position for Bitcoin. While the cryptocurrency may encounter short-term fluctuations if the Federal Reserve tightens monetary policy, its allure as a hedge against inflation remains unwavering, attracting investors wary of inflationary threats.
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