Markets
Bitcoin (BTC) price may take direction from inflation data this week
Bitcoin (BTC) managed to post a modest rally in the past 72 hours after last week’s rough close, but three major economic reports released this week are among the factors likely to spark more volatility.
As of this writing, the world’s largest cryptocurrency was trading at $62,700, up 2% over the past 24 hours, according to CoinDesk data, and ahead of Friday’s low by 4%. The widest CoinDesk 20 Index it was higher by 1.25% in the last 24 hours.
With spot purchases of bitcoin ETFs slowing to a near-stop and even turning net negative on some days, macro catalysts have taken on greater importance of late. This was evident on Friday morning in the United States, when an unexpected rise in consumer inflation expectations, combined with hawkish remarks from Dallas Fed President Lori Logan, sent bitcoin collapses to $3,000 within minutes from the $63,300 level.
The next negative or positive catalysts will likely come from US inflation reports, namely the Producer Price Index (PPI) scheduled for release Tuesday at 8:30 a.m. ET and the Consumer Price Index (CPI) 24 hours later.
Of the two, the CPI report is the more important one, and economists expect that indicator to have increased by 0.4% in April, in line with the advance in March. The annual pace of headline CPI is expected to slow to 3.4% from 3.5% in March. The so-called core CPI – which excludes food and energy costs – is expected to rise 0.3% in April compared to 0.4% in March, with the annual pace declining from 3.8% to 3.6%.
It is stubbornly high inflation that has put a strain on market expectations for a series of rate cuts by the Federal Reserve in 2024. So far, there have been exactly zero rate cuts, and markets are now pricing in a probability of 11% that the Fed remains idle. the rest of the year, according to ECM FedWatch. Another rapid inflation report could not only cause traders to abandon hopes of looser monetary policy in 2024, but could cause them to start pricing in the odds that the Fed’s next move will be a key rate hike.
We will also release the US government’s retail sales report for April on Wednesday, which should not be overlooked as an important data point. In addition to high inflation, the U.S. economy has shown no signs of needing lower rates. While there has been a modest slowdown of late, job gains continue to impress every month and retail sales numbers show healthy consumer spending.
Economists forecast that retail sales grew 0.4% in April compared to 0.7% in March. Excluding autos and gas, retail sales in April are expected to rise just 0.1% compared to 1.0% in March.
Investors will also be able to hear from Fed Chair Jerome Powell, who will take part in a moderated discussion with Dutch central bank governor Klaas Knot at the Foreign Bankers Association’s annual general meeting in Amsterdam on Tuesday at 10 a.m. ET. In early May, Powell dismissed the idea that the US economy was in danger of falling into “stagflation” – a term made famous in the 1970s meaning slow or negative economic growth combined with rapid inflation.
“I don’t see ‘stag’ or ‘flation,’” Powell said at a press conference on May 1. Market participants may want to tune in Tuesday to see if recent data is changing their minds.