U.S. Inflation Was Negative in June; Bitcoin Jumps Above $59K

As a researcher with a background in economics and finance, I’ve been closely monitoring inflation data and its impact on financial markets. The June CPI report came as a surprise, showing a negative 0.1% pace against expectations of a 0.1% gain. This retreating trend in inflation has significantly increased the odds of imminent Fed rate cuts, which in turn sent the price of bitcoin soaring.

The Consumer Price Index (CPI) data released by the government on Thursday revealed that inflation receded in June, registering a decrease of 0.1%, contrary to expectations of a 0.1% increase and no change from May at 0.0%.

On a year-over-year basis, the CPI was higher by 3.0% versus expectations for 3.1% and 3.3% in May.

The increase in the core Consumer Price Index, which excludes food and energy costs, came in slightly below estimates in June at 0.1%, compared to anticipations of a 0.2% rise and a 0.2% increment in May. Conversely, the year-over-year growth rate for the core CPI surpassed expectations, climbing to 3.3% against forecasts of 3.4% and last month’s figure of 3.4%.

Traditional markets reveal an uptick in U.S. stock index futures, while the 10-year Treasury yield decreases by 9 basis points to land at 4.20%. Gold’s value has climbed up by 1%, reaching $2,404 per ounce.

As a crypto investor, I’ve been closely monitoring the upcoming Federal Reserve meeting, and the buzz in the market is growing stronger by the day. According to the CME FedWatch tool, there’s now over 70% chance that the Fed will lower its benchmark fed funds rate at their mid-September gathering – a significant shift from the less than 50% probability just a month ago. Despite my anticipation, Federal Reserve Chair Jerome Powell was cautious during his two days of testimony before Congress this week, neither confirming nor denying any plans for a rate cut.

During his testimony, Powell admitted to the softening job market and acknowledged the Federal Reserve’s growing concern over potential economic setbacks. Nevertheless, he emphasized, as he has for quite some time, that the Fed intends to wait for clear evidence of inflation approaching its 2% goal before contemplating any rate reductions.

In search of a catalyst

As a researcher studying Bitcoin’s market trends, I’ve observed that the cryptocurrency experienced significant downward pressure during the second quarter after hitting an all-time high of around $73,500 in late March. The inflows into U.S.-based spot ETFs slowed and even reversed on occasion. In late June and early July, there was a surge in supply as a result of government sell-offs and the release of Mt. Gox tokens. This sudden influx caused the price to plummet, dipping below $54,000 at one point – nearly 27% lower than its previous record high.

The drop in bitcoin may be particularly disheartening for bulls, as US stocks have persistently risen during the summer, recording their seventh successive daily increase and reaching new record highs for both the S&P 500 and Nasdaq.

After the recently released inflation data, the probability of a rate cut by the Fed in September reached 87%, and the likelihood of two or more cuts before their November meeting approached 50%. Simultaneously, the U.S. dollar index experienced a significant drop of almost 1%. It remains to be seen if this development will trigger a new surge for bitcoin’s price.