The global financial sector, including gold and the crypto market, was eagerly awaiting the US CPI data today. According to the latest data released by the US Department of Labor, inflation came in below expectations in June. The inflation data seems to have boosted Bitcoin market sentiment today, which was recently hit by the massive dumping by the German government. Gold prices also hit new session highs above $2,400 following the US CPI.
US CPI came in below expectations
The US Bureau of Labor Statistics reported on Thursday that the Consumer Price Index (CPI) fell 0.1% last month, following a flat 0.0% in May. While economists had expected a 0.1% increase, the latest inflation data came in better than expected. According to the report, headline inflation increased by 3.0% in the last 12 months, below the expectation of 3.1%. Thus, CPI was lower than the 3.3% increase in May.
Cooling inflation has increased market interest. It led to speculation on a positive sentiment in the broader financial market, let alone the crypto sector. In addition, it also increased bets on a possible rate cut by the Fed in September. On the other hand, Core CPI data showed that excluding food and energy prices, inflation eased to 3.3% in June from 3.4% in the previous month. On a monthly basis, Core CPI came in at 0.1%, below market forecasts and May’s 0.2%. Annual core inflation came in at 3.3% in June, better than expectations and better than the previous month’s reading of 3.4%, the report said.
How did the gold market react?
The gold market reacted strongly bullishly to the better-than-expected inflation data. Spot gold immediately rose above $2,400 in the minutes following the CPI release. Thus, it was last traded at $2,402.45, up 1.31% in the session.
The gold market continues its solid gains above $2,400, despite the US labor market showing resilient strength with fewer workers filing for first-time unemployment benefits. Initial jobless claims for the week ended July 6 fell by 15,000 to a seasonally adjusted 222,000, the Labor Department said on Thursday. Jobless claims fell sharply from last week’s revised estimate of 239,000. According to consensus estimates, economists were expecting a small decline to 236,000. Gold is not paying much attention to the labor market data as it was released alongside weaker than expected inflation data. While the labor market remains resilient, weak inflation gives the Fed room to cut interest rates.
Bitcoin price bounces after US CPI
Bitcoin price jumped to $59,100 in the minutes following the report. With this move, it has risen by nearly 2% in the last 24 hours. Prior to the latest report, market participants were getting closer and closer to the idea that the Fed would finally cut its benchmark interest rate at its mid-September meeting. The CME FedWatch tool increased the probability of this happening from less than 50% a month ago to more than 70%. As you have been following on Kriptokoin.com, Fed Chairman Jerome Powell made no effort to confirm or deny this in two days of Congressional testimony earlier this week.
In that testimony, Powell acknowledged that the labor market is weakening and that the Fed is increasingly focused on downside risks to the economy. However, he reiterated, as he and other Fed members have been doing for weeks, if not months, that the central bank wants confirmation that inflation has returned to its 2% target before rate cuts can really be considered.
Bitcoin is in search of a catalyst!
The leading cryptocurrency has been under severe pressure in recent weeks since hitting an ATH of over $73,500 late in the first quarter. In the second quarter, inflows slowed and there were even occasional large net outflows into US-based spot ETFs. Then, from late June to early July, inflows slowed, driven by the sale of sovereign assets and the return of Mt. Gox tokens, pushing the price below $54,000 at one point, about 27% below its record high.
Bitcoin’s decline could prove even more frustrating for bulls as other competing risk assets continue to rally over the summer. In the immediate aftermath of the latest inflation figures, the probability of a rate cut in September has risen to 87% and the probability of two or more rate cuts by the Fed’s November meeting has risen to around 50%. On top of that, the US dollar index fell by around 1%, a sizable move for this indicator. Time will tell if this will be the catalyst for a new uptrend for Bitcoin.
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