Key Insights:
- The crypto market is entering a big week, and all eyes are on new U.S. inflation and employment data.
- What is particularly of interest to investors is whether inflation has eased to support a potential fed rate cut.
- January’s data showed headline CPI at 2.4% and core CPI at 2.5%. For February, economists do not expect much of a change.
The crypto market is entering a big week, and all eyes are on new U.S. inflation data. Two major reports that investors are watching are Wednesday’s Consumer Price Index (CPI) and Friday’s Personal Consumption Expenditures (PCE) data.
Both of these reports could shape the next price action for Bitcoin, Ethereum, and the overall crypto market.
What is particularly of interest to investors is whether inflation has eased to support a Fed rate cut. This is because low rates provide a positive push to risk assets such as crypto prices.
However, the Federal Reserve may increase the rate if inflation has not cooled.
Crypto Market: Why Does This Week’s Data Matter So Much?
In January, headline US CPI slowed to 2.4% from a year earlier. Meanwhile, Core CPI came in at 2.5%. For February, economists expect both readings to remain largely unchanged.
Since the Fed pays closer attention to PCE when judging price pressures, it is likely to have the biggest impact on crypto prices.
Unlike US CPI data, headline PCE rose to 2.9% in December. Analysts estimated it would dip to 2.8% in January. More importantly, core PCE was expected to stay stuck at 3.0%.
The real concern is If core inflation does not start easing, the chances of an early rate cut become much slimmer. For now, some Fed officials seem fine holding rates steady for longer.
Still, if inflation softens further, even those who have been more careful could warm to the idea of a cut by June.
Bitcoin Pulls Back as Traders Turn Cautious
The price of Bitcoin was already showing signs of weakness after it climbed above $72,000. However, it did not last for a long time on the upside after it dropped from the $73,500 resistance level.
Crypto market traders tend to play it safe before major macro reports, especially when those releases could influence the Fed’s next move. As uncertainty builds, risk assets like Bitcoin often come under pressure.
At the same time, institutional sentiment also appeared shaky.
After attracting more than $1.1 billion in inflows over three straight days, the US spot Bitcoin ETF lost momentum. By Thursday, they had swung to $228 million in outflows, adding to the market’s growing weakness.
Weak Jobs Data Adds to Crypto Market Anxiety
The latest inflation data gave investors some encouragement, though it was not enough to remove the crypto market fear.
January’s data showed headline US CPI at 2.4% and core CPI at 2.5%. For February, economists do not expect much of a change.
Energy prices are also becoming part of the market conversation. A lot of attention is now on the Strait of Hormuz, since any supply disruption there could quickly push oil above $100 a barrel.
If that happens, inflation could rise again. Some crypto market watchers believe every $10 increase in oil may add about 0.20% to headline inflation.
That would make Fed rate cuts even less likely and reduce liquidity for risk assets such as crypto prices. For now, CME FedWatch data shows only a 4.4% chance of a March rate cut.
Next week will start with fresh GDP data from Japan on Monday. That report should give the broader financial sectors, let alone the crypto market, a better sense of how the country’s economy is doing at a time when global growth still looks shaky.
By Wednesday, the focus will shift to a much busier slate of data. Germany is due to release its latest consumer inflation figures, which should give markets another look at price pressures in Europe’s biggest economy.
Because Germany often sets the pace for the wider eurozone, the report is likely to get plenty of attention.