- Today, the global financial sector eagerly awaited the release of the US Consumer Price Index (CPI) data, including the gold and crypto markets.
- According to the latest figures from the US Department of Labor, inflation in June came in lower than expected, surprising many analysts.
- The positive inflation data gave a significant boost to Bitcoin market sentiment, which had been previously impacted by massive sell-offs from the German government.
The latest US CPI data reveals unexpectedly low inflation, triggering a sharp rise in Bitcoin and gold prices. How will the Fed’s next move shape the financial landscape?
US CPI Data Falls Short of Expectations
The Bureau of Labor Statistics reported that the CPI decreased by 0.1% in June, following a flat rate of 0.0% in May. Economists had predicted a 0.1% increase, making the latest data better than anticipated. Over the past year, headline inflation has risen by 3.0%, falling short of the expected 3.1% and lower than the 3.3% increase seen in May.
Market Reactions to Cooler Inflation
With the cooling inflation figures, broader market sentiment has turned positive, sparking speculations about the Federal Reserve potentially cutting interest rates in September. The Core CPI, which excludes food and energy prices, also showed a decline, with monthly data coming in at 0.1%, below market expectations and May’s 0.2%. This points to an annual core inflation rate of 3.3%, better than both the anticipated and previous month’s figures.
Gold Market’s Strong Upward Response
Gold prices reacted strongly to the better-than-expected inflation data, with spot gold prices soaring to over $2,400 immediately after the CPI announcement. The price per ounce ultimately reached $2,402.45, marking a 1.31% increase for the session. This rise occurred despite robust labor market data, which saw initial jobless claims drop by 15,000 to a seasonally adjusted 222,000 for the week ending July 6, significantly lower than the revised forecast of 239,000.
Labor Market’s Limited Impact on Gold Prices
While the labor market remains resilient, with fewer first-time unemployment claims than expected, the focus shifted to the promising inflation data. Weak inflation figures provide the Federal Reserve with the flexibility to lower interest rates, which in turn supports the gold market’s gains.
Bitcoin Surges Post CPI Report
Bitcoin prices surged to $59,100 in the minutes following the report, representing a nearly 2% increase in the last 24 hours. Market participants had been increasingly optimistic about a potential rate cut in the Fed’s mid-September meeting, with the CME FedWatch tool showing a rise in probability from below 50% a month ago to over 70% now.
Fed’s Outlook and Bitcoin’s Recent Performance
Fed Chair Jerome Powell, in his recent Congressional testimony, acknowledged a weakening labor market and the escalating focus on downside risks to the economy. He emphasized the need for inflation to revert to the 2% target before considering interest rate cuts. Bitcoin faced substantial pressure, dipping below $54,000 amidst significant asset sell-offs, but the latest CPI data could catalyze a rebound.
The Potential Catalysts for Bitcoin’s Next Move
Bitcoin’s decline, exacerbated by substantial outflows from US-based spot ETFs in the second quarter, pushed the price approximately 27% below the all-time high of $73,500 reached at the end of Q1. However, the probability of an interest rate cut in September has surged to 87%, with potential for further cuts by November. Additionally, a 1% drop in the US Dollar Index following the inflation data suggests a favorable backdrop for Bitcoin’s recovery. Whether this will indeed spark the next bull run remains to be seen.
Conclusion
The latest US CPI data has had a profound impact on both gold and Bitcoin markets, triggering sharp price increases and fuelling speculation around potential Federal Reserve rate cuts. As inflation cools and the labor market shows resilience, the financial sector keenly awaits the Fed’s next steps, with the potential for significant market shifts on the horizon.
