Bitcoin Has Best Day in 2 Months as Markets Anticipate a ‘Summer of Easing’

New data from the U.S. Labor Department unveiled on Wednesday reveals that the Consumer Price Index (CPI) grew at a slower pace than anticipated in April, indicating a possible reversal of inflation trends in the United States’ economy. The overall CPI climbed 0.3% last month following consecutive increases of 0.4% in March and February. The core CPI, which adjusts for price fluctuations in food and energy items, also rose by 0.3% in April after a similar rise in March.

As a crypto investor closely monitoring economic indicators, I’ve noticed that headline retail sales growth came to a halt in April based on recent data. Specifically, sales within the “control group” category – an essential component used for calculating Gross Domestic Product (GDP) – decreased by 0.3% compared to the previous month.

Expectations for rate cuts have noticeably changed. According to fed funds futures, traders anticipate the Federal Reserve to implement the initial 0.25 percentage point reduction in interest rates during September (with summer starting on June 20th and ending on September 22nd). Recently, the Fed has indicated its intention to slow down the pace of quantitative tightening from June, which is another method used to restrict liquidity.

As an analyst, I would rephrase it as follows: I believe the Fed isn’t the only central bank considering rate cuts. In fact, market anticipation suggests that the Bank of England (BOE) and the European Central Bank (ECB) will reduce their interest rates in June. Additionally, the Swiss National Bank (SNB) and Sweden’s Riksbank have already made moves by lowering their benchmark borrowing costs.

Global central banks are shifting their policies towards providing more monetary stimulus or easier access to liquidity. This trend is beneficial for risky assets like cryptocurrencies, as illustrated in the graph from data tracker MacroMicro.

The trend of central banks making their most recent interest rate adjustments in the form of decreases, rather than increases, is on the rise around the globe. Conversely, the proportion of central banks opting for rate hikes has been declining rapidly.

In other words, the net percentage of central bank cutting rates is rising.

As MacroMicro explained, the greater the percentage of central banks reducing interest rates, the better for market liquidity. On the other hand, a smaller percentage implies less liquidity in the financial markets.

As a researcher, I would interpret Pepperstone’s perspective as follows: The anticipated liquidity easing during the summer is expected to bolster equity markets, instilling sufficient trust in investors for them to extend their investment horizons and embrace risks beyond the traditional safe-haven assets.