The cryptocurrency market is closely monitoring the upcoming US Consumer Price Index (CPI) data, which is anticipated to influence the broader financial sector's sentiment. The ongoing US government shutdown has left investors uncertain about the potential next steps of the US Federal Reserve. Furthermore, escalating trade tensions between the US and China have exacerbated the current market scenario, negatively impacting cryptocurrency prices. Bitcoin has seen a retreat from its all-time high, falling to as low as $103,000, and other altcoins such as Ethereum and XRP have also experienced significant downturns.
However, the forthcoming CPI data, a key inflation gauge favored by the central bank, has become a focal point in crypto news. Discussions have intensified due to it being the only major economic release scheduled before next week's Federal Reserve meeting regarding its policy rate plans. The crypto market is currently anticipating two more rate cuts by the Fed this year, which could potentially support a strong recovery for risk-asset investments.
A softer CPI print is likely to boost overall financial market sentiment, possibly contributing to a rally in cryptocurrency prices. Conversely, if inflationary pressures prove to be higher than expected, it could intensify selling pressure across the market. This analysis explores the current expectations for the US CPI and its potential implications for the digital asset space.
US CPI Expectations and Potential Impact on Crypto
The entire financial sector, including the cryptocurrency market, is keenly focused on the upcoming US CPI data release later this week. This data, expected on Friday, is poised to shape the US Federal Reserve's policy rate decisions. Wall Street analysts anticipate that the US CPI will remain unchanged at 0.4% for September. The Core CPI, which excludes volatile food and energy prices, is projected to come in at 0.3%, mirroring the August reading.
On a year-over-year basis, the CPI is expected to rise to 3.1%, up from the prior month's 2.9%. The Core CPI on a year-over-year basis is forecast to hold steady at 3.1%. A CPI report that is cooler than market expectations could contribute to a recovery in cryptocurrency prices. In recent crypto news, market observers are also anticipating a potential 25 basis point (bps) Federal Reserve rate cut announcement at the central bank's meeting next week.
Fed Rate Cut to Influence Crypto Prices
The market is currently pricing in the possibility of two Federal Reserve rate cuts in the final quarter of the year. Data from the CME FedWatch Tool indicates a 97% probability of a 25 bps rate cut at the US central bank's upcoming meeting on October 29. Additionally, another 0.25% rate cut is anticipated at the Fed's December gathering.
The cryptocurrency market is now awaiting the US CPI data to solidify expectations for a potential rate cut next week. According to QCP Group, a softer US CPI print would likely improve market sentiment and potentially lead to increased liquidity. Historically, lower interest rates have tended to support rallies in cryptocurrency prices.
Furthermore, the recent decline in gold prices suggests that the precious metal may have reached its peak. The gold price has fallen for the second consecutive day, marking a significant decline since 2020. In light of these developments, analyst Michael van de Poppe has suggested that funds might rotate from gold into Bitcoin and subsequently into altcoins.
Therefore, a softer US CPI report combined with the anticipated Federal Reserve rate cut could potentially trigger a strong recovery for the cryptocurrency market.