Major cryptocurrencies are under pressure, reflecting heightened expectations of an interest rate hike from the Federal Reserve as soon as July, just ahead of key U.S. inflation data and congressional testimony from Chairman Kevin Warsh.
Bitcoin BTC at $62,465.50 fell more than 2% in 24 hours to $62,380. Ether (ETH), $XRP ($XRP) and other tokens are also suffering similar losses, according to CoinDesk data.
Market Changes on Fed Position
Money markets now assign a roughly 50% chance of a Fed rate hike this month, according to Bloomberg data, up sharply from around 10% just days ago. The move follows remarks from Fed Governor Christopher Waller that officials may need to raise rates to control price pressures.
The revaluation rippled through fixed-income markets, pushing the two-year U.S. Treasury yield to 4.29%, its highest level since early last year. This part of the yield curve is particularly sensitive to changes in short-term policy expectations.
This renewed hawkishness stems in part from the escalation of tensions between the United States and Iran and the sharp rise in oil prices. President Donald Trump reinstated the U.S. blockade of Iranian ships transiting the Strait of Hormuz and demanded a 20% refund on all other goods transiting the critical waterway.
West Texas Intermediate crude futures jumped to nearly $80 a barrel from $67 earlier this month, fueling fresh concerns about inflation.
Focus on the testimonies of CPI and Warsh
Investors will get a new reading on price pressures on Tuesday when the Labor Department releases the June Consumer Price Index at 8:30 a.m. ET.
Economists surveyed by Bloomberg forecast that the headline CPI will fall below an annual rate of 4%. The report is expected to show the first declines in headline and core inflation since January, following May’s figures of 4.2% and 2.9%, respectively.
Even if the figures meet expectations, they risk being considered retrospective given the recent surge in oil prices. If inflation turns out to be rather persistent, the data could amplify concerns about the Fed’s path forward.
Attention will then turn to Mr. Warsh’s testimony at the Capitol. Given the Fed Chairman’s preference for limited forward guidance, investors will closely monitor any signals regarding rates and inflation.
According to ING analysts, he could “if he wishes, emphasize the moderation of inflation expectations”.
They added that Mr. Warsh “has enough ammunition here to address the risk of rate hikes and instead hold on. Even if he is under pressure to raise rates, the wealth attached to the 5-year end of the curve tells us that any hike (if it happens) is likely to be subsequently reversed, with the prospect always of greater cuts than hikes.”
