Crypto markets have responded favourably to a slower-than-expected US inflation print in July, with the official rate steady at 8.5 percent and both Bitcoin (2 percent) and Ethereum (9 percent) up within minutes of the report’s release:
With the worst of consumer price increases now behind the US economy, there was widespread relief on the part of crypto traders that the Federal Reserve might relax its aggressive approach to tightening monetary conditions.
CPI Unchanged, Below Projections
The consumer price index (CPI) was unchanged from the previous month, due in part to lower energy prices, according to a Bureau of Labor Statistics report. Food and energy prices aside, core CPI remained unchanged at 5.9 percent over the past 12 months, just under a projected 6.1 percent.
“The Fed will be cheered by the news, especially the fact that core inflation was also lower than expected,” said Richard Carter, head of fixed interest research at UK-based investment management firm Quilter Cheviot.
They will still need to hike rates at their next meeting in September, but this reduces the risk of another 75 basis-point move and, going forward, we might just see markets act a little calmer than they have to date.
Richard Carter, head of fixed interest research, Quilter Cheviot
Next Rate Hike Likely to be 50 Points, Not 75
More than 60 percent of traders are now betting the Fed will hike interest rates by 50 basis points in September, compared with half that number just one day ago, according to the CME FedWatch Tool. Traders saw a 75 basis-point hike as the likelier scenario after last week’s Bureau of Labor report showed the economy was still able to sustain more rate hikes.
All of which is a far cry from two months ago when crypto markets shed US$100 billion in the wake of the highest US CPI print in 40 years.