- The US inflation rate is set o be announced on August 10, and the expectation is for 3.3% year-over-year.
- Bitcoin price could benefit from this outlook, considering the correlation between BTC and US Dollar has dropped sharply.
- BTC could experience a shot of volatility, causing it to rise up and retest $30,000 after the CPI announcement.
The announcement of the US inflation rate, aka the Consumer Price Index (CPI), on August 10 at 12:30 GMT could further clarify Federal Reserve’s next step. Based on the forecasts, the year-over-year inflation rate is expected to rise from 3% in June to 3.3% in July. Cryptocurrency enthusiasts are likely to watch this event closely as it could bring back the volatility after months of sideways movement.
The US CPI could catalyze another rate hike from the Fed
On August 10 at 12:30 GMT, the United States Consure Price Index numbers will be revealed, giving the Federal Reserve (Fed) a chance to look at the data and decide its next path to reduce inflation. The Fed has set a 2% inflation target, so a spike in prices could suggest an upcoming interest rate hike in September.
The last rate hike of 25 basis points in July had no impact on Bitcoin price whatsoever, and the lack of reaction could be attributed to the drop in correlation between the US Dollar and BTC. But after more than a month of sideways movement, Bitcoin price could see a spike in volatility on the release of CPI.
Inflation FAQs
What is inflation?
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
What is the Consumer Price Index (CPI)?
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
What is the impact of inflation on foreign exchange?
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
How does inflation influence the price of Gold?
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
Bitcoin price and its next two steps
Bitcoin price currently hovers around $29,236 and is eyeing a run-up to $30,340. The said level is key as it coincides with the midpoint of the recent 9% downswing and the imbalance formed during this drop.
This short-term move to the upside will allow short sellers to open fresh short positions before Bitcoin price eventually crashes to key support levels at $28,138, $27,330 and $26,761, respectively.
BTC/USDT 4-hour chart
A higher CPI number would favor an incoming raise in interest rate from the Fed. A higher interest rate would denote a stronger US Dollar, which is typically bearish for risk-on assets like stocks or Bitcoin. From the start of 2022, US Dollar and other macroeconomic events have played a significant role in controlling Bitcoin price.
But of late, the correlation between the US Dollar and Bitcoin price has been on a decline. Hence, the release of US Nonfarm Payrolls in July had little effect on BTC. Moreover, the lack of volatility has pushed investors from centralized platforms to decentralized ones, which has triggered a massive spike in alt season for on-chain altcoins.
Like this article? Help us with some feedback by answering this survey:
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
US presidential election outcome could shape the future of crypto
US citizens will go to the polls to elect a new president on November 5, and their choice could be key for the future of the crypto industry and thus the price outlook for Bitcoin (BTC).
Bitcoin Price Forecast: BTC recovers as Donald Trump takes lead on polls
Bitcoin (BTC) slightly recovered to around $68,800 on Tuesday, following a shift in the United States presidential race that saw former President Donald Trump regain the lead, after US spot Bitcoin ETFs experienced an outflow of over $540 million on Monday.
Crypto markets brace for volatility in tight race between Trump and Harris
The US presidential election is one of the most significant events in the world. Due to the influence of the country’s political decisions, policies, and economic approaches, it can significantly impact crypto and global markets.
Trump-inspired memecoin MAGA shows bullish on-chain metrics ahead of US elections
MAGA (TRUMP) trades slightly down to around $3.4 on Tuesday after rallying more than 20% since Sunday. The former President Donald Trump-based memecoin is poised for further gains as daily active addresses and network growth metrics rise, signaling increased network usage and adoption
Bitcoin: New all-time high at $78,900 looks feasible
Bitcoin price declines over 2% this week, but the bounce from a key technical level on the weekly chart signals chances of hitting a new all-time high in the short term. US spot Bitcoin ETFs posted $596 million in inflows until Thursday despite the increased profit-taking activity.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.