Thanks to overwhelming demand for cryptocurrencies from new spot ETFs, Bitcoin bulls have had a break so far this year from having to focus on things like the economy and the Federal Reserve's monetary policy. At least for now, that seems to be changing.
Thursday morning's Producer Price Index (PPI) for February was another data indicator that high inflation is proving far more stubborn than most expected. According to the government report, the producer price index rose 0.6% last month, doubling the pace in January and also doubling economists' forecasts. The so-called core PPI, which excludes food and energy costs, rose 0.3% in February, a slowdown from 0.5% in January but above forecasts of 0.2%.
Earlier this week, the consumer price index (CPI) also rose faster than expected, with inflation rising to 3.2% annually and the core rate rising to 3.8%.
After threatening to fall below 4% earlier this month, the 10-year Treasury yield has now risen to 4.30%. At the same time, the U.S. dollar has broken a downtrend that began in mid-February and is up about 1% over the past week, including a 0.5% gain on Thursday. All other things being equal, higher interest rates and a rising dollar tend to have a negative impact on risky assets like Bitcoin (BTC).
Expectations of a significantly looser monetary policy in 2024 continue to be pushed back. At the beginning of the year, markets had expected the Fed to cut interest rates by up to 150 basis points in 2024, with the first cut coming at the Federal Open Market Committee meeting next week. At this point, no one expects it any more, and no cuts are expected at the May meeting. According to the CME FedWatch tool, the probability of lower interest rates fell to about 50% in June.
After rising around 70% in 2024 to a new record high of just under $74,000, Bitcoin was certainly vulnerable to a correction and it could be that the inflation, interest rate and dollar news gave traders an excuse to ease have given. After hitting $73,800 early Thursday morning, Bitcoin slipped to as low as $70,650 following the release of economic data. At press time, the price was trading at $70,900 and has fallen by more than 3% in the last 24 hours. The broader CoinDesk 20 index was just 1.7% lower, with gains in Solana and Dogecoin contributing to that indicator's outperformance.
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