US CPI Data Sparks Risk-Asset Upside as Bitcoin Eyes $80,000
Key Takeaways
- •US headline CPI rose 3.4% year-on-year in August, while gasoline and energy prices increased 3.9% and 2.1% respectively during the month.
- •Bitcoin gained more than 3% on the day and returned to the $79,000 level after an initial decline.
- •Markets priced an 85% probability of a 0.25% Federal Reserve rate hike at the Sept. 16 meeting, up from 60% one week earlier.
- •The 30-year US Treasury yield briefly reached its highest level since June 2004 before falling to 5.309%.
- •QCP Capital said rising yields may weigh on Bitcoin, though Treasury buybacks could provide support after injecting additional market liquidity.
Bitcoin (BTC) returned to $79,000 on Friday after key US inflation data broadly conformed to expectations, although core CPI rose more than economists had forecast. The release also pushed up market expectations for a Federal Reserve interest-rate hike at its Sept. 16 meeting.
Core CPI increased 0.3% month-on-month in August, compared with expectations for a 0.2% rise. Implied probabilities of a 0.25% rate hike at the Federal Reserve meeting rose to 85%, up from 60% a week earlier. QCP Capital warned that higher US bond yields could create a headwind for Bitcoin as monetary policy tightens.
Bitcoin rebounds as markets digest CPI data
Data from TradingView showed renewed volatility in BTC/USD following the August Consumer Price Index release, which recorded inflation of 3.4% year-on-year.
Bitcoin initially fell to $76,000 before reversing higher. BTC/USD gained more than 3% on the day and returned to the $79,000 level. US equities also moved higher after a weak start to the session, as the CPI report broadly matched expectations one day after the Producer Price Index overshot forecasts. The S\u0026P 500 was up 1% at the time of writing, while the tech-heavy Nasdaq Composite Index gained 1.1%.
Bond markets also experienced sharp volatility. Following the CPI release, the 30-year US Treasury yield initially reached its highest level since June 2004 before falling to 5.309%.
“This is a nervous market,” trading resource The Kobeissi Letter said in a response on X: https://x.com/KobeissiLetter/status/2098394257216131148
WTI crude oil continued to trade near $100 per barrel, while the effects of the expanding US-Iran war and the associated oil-supply squeeze were reflected in the inflation data.
“The index for gasoline rose 3.9 percent in August, accounting for over one third of the monthly all items increase. The index for energy increased 2.1 percent over the month,” the Bureau of Labor Statistics said in its official news release.
The release also showed that core CPI rose 0.3% in August, 0.1 percentage point above expectations.
Traders increase rate-hike bets
Following the report, traders increased their bets that the Federal Reserve would raise interest rates by 0.25% at its Sept. 16 meeting. Data from CME Group’s FedWatch Tool showed the implied probability of that outcome rising to 85% on Friday, compared with 60% one week earlier.
The shift in rate expectations gives markets another policy-sensitive indicator to monitor alongside Treasury yields and incoming inflation data ahead of the meeting.
Federal Reserve officials remain divided over the appropriate policy path. Governor Christopher Waller said the previous week that he would be inclined to leave rates in their current 3.50%-3.75% range if inflation data showed at least “some signs of disinflation.”
“What’s the cost of waiting one meeting? Hiking 25 basis points, one meeting right now, is not going to bring the CPI down to 2%,” Waller told Reuters.
QCP warns that rising yields may pressure Bitcoin
QCP Capital said higher bond yields could weigh on Bitcoin despite BTC/USD having risen 25% in August after the US Treasury announced plans to increase its debt-buyback interventions.
In its latest analysis, the trading company wrote, “The rise in US yields this year has been driven increasingly by tighter policy expectations and a risk premium common to both stocks and bonds, rather than by growth.”
“This is the worst mix for Bitcoin: a competing 5% risk-free rate without the nominal-growth impulse that usually accompanies yield moves. It directly undercuts the narrative that carried Bitcoin from $63,000 to $82,000 in the second half of August, which leaned on the idea of a Treasury liquidity put providing structural support.”
QCP said Bitcoin could ultimately benefit from the developments, but only after the Treasury’s buyback operations have had enough time to inject sufficient liquidity into markets. The report follows earlier coverage of the Treasury’s buyback plans: https://cointelegraph.com/markets/bitcoin-price-hits-11-week-high-as-us-treasury-doubles-debt-buyback-size
Original source: https://cointelegraph.com/markets/bitcoin-spikes-toward-80k-as-us-cpi-data-delivers-new-22-year-high-in-bond-yields
Related coverage: https://cointelegraph.com/markets/bitcoin-buyers-wary-of-july-sub-58k-floor-amid-onchain-data-anomaly
