The global financial sector, including the gold and crypto markets, was eagerly awaiting the US CPI data today. According to the latest data released by the US Department of Labor, inflation fell short of expectations in June. The inflation data seems to have boosted Bitcoin market sentiment today, which has been hit recently by the massive bailout by the German government. Gold prices also saw new session highs above $2,400 following the US CPI.
US CPI came in below expectations
The U.S. Bureau of Labor Statistics reported on Thursday that the Consumer Price Index (CPI) fell 0.1% last month after a flat 0.0% in May. The latest inflation data came in better than expected, with economists expecting a 0.1% increase. The report said headline inflation rose 3.0% over the past 12 months, below expectations of 3.1%. That lowered the CPI’s 3.3% increase in May.
Cooling inflation has increased market interest. It has led to speculation on a positive sentiment in the broader financial market, not to mention the crypto sector. In addition, it has also increased bets on a possible Fed rate cut in September. Meanwhile, Core CPI data showed that inflation, excluding food and energy prices, slowed to 3.3% in June from 3.4% the previous month. On a monthly basis, Core CPI came in at 0.1%, below market estimates and May’s 0.2%. The report noted that annual core inflation rose to 3.3% in June, better than expected and the previous month’s 3.4%.
How did the gold market react?
The gold market reacted strongly to the better-than-expected inflation data. Spot gold rose above $2,400 in the minutes following the CPI announcement. Thus, it was last traded at $2,402.45, up 1.31% in the session.
The gold market is holding firm gains above $2,400 a troy ounce, even as the U.S. labor market shows resilient strength as fewer workers file for unemployment benefits for the first time. The Labor Department said Thursday that initial jobless claims for the week ended July 6 fell by 15,000 to a seasonally adjusted 222,000. Jobless claims fell sharply from last week’s revised estimate of 239,000. Economists had expected a smaller decline to 236,000, according to consensus estimates. Gold is not paying much attention to labor market data, as it comes alongside weaker-than-expected inflation data. While the labor market remains resilient, weak inflation gives the Fed room to cut interest rates.
Bitcoin price jumps after US CPI
Bitcoin prices jumped to $59,100 in the minutes following the report, taking it up about 2% in the past 24 hours. Ahead of the latest report, market participants were increasingly bullish on the idea that the Fed would eventually cut its benchmark interest rate at its mid-September meeting. The CME FedWatch tool put the probability of that happening above 70%, up from below 50% a month ago. Cryptocoin.comAs you’ve been following on , Fed Chair Jerome Powell made no effort to confirm or deny this during two days of Congressional testimony earlier this week.
In that statement, Powell acknowledged that the labor market has weakened and that the Fed has increasingly focused on downside risks to the economy. He reiterated, as he and other Fed members have done for weeks if not months, that the central bank wants confirmation that inflation has returned to its 2% target before rate cuts can actually be considered.
Bitcoin is looking for a catalyst!
The leading cryptocurrency has been under severe pressure in recent weeks since reaching its ATH level above $73,500 in late Q1. Inflows slowed in Q2, and at times there were even large net outflows into U.S.-based spot ETFs. Then, from late June to early July, a flood of supply from the sale of state assets and the return of Mt. Gox tokens sent the price below $54,000 at one point, about 27% below the all-time high.
Bitcoin’s decline could be even more frustrating for bulls as other rival risk assets have continued to rise over the summer. The probability of a September rate cut has risen to 87% on the heels of the latest inflation figures, while the probability of two or more rate cuts by the Fed’s November meeting has risen to around 50%. In addition, the US dollar index fell nearly 1%, a sizeable move for this indicator. Time will tell whether this will be the catalyst for a new rally for Bitcoin.
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