Last week, the cryptocurrency market experienced one of its major crashes of 2024, triggered by multiple bearish reports. Since then, the market has shown signs of recovery, although it continues to fluctuate near resistance levels. This instability is due to the CPI report expected later this week, which could bring additional volatility to cryptocurrency prices. This article will explore potential market trends for the week ahead as the CPI report approaches.
US inflation drives cryptocurrency sentiment
Cryptocurrency prices surged for the fifth straight day as fears of a recession in the US eased following positive jobless claims figures. The market was awash in green, with Bitcoin and several altcoins surging more than 35% from their weekly lows.
The recent rally in crypto and stock markets was largely triggered by the U.S. jobless claims report released on August 8. According to the report, fewer people filed for unemployment benefits last week, with the number of people dropping to 233,000 from 250,000 the previous week.
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The data came shortly after another report showed the unemployment rate rose to 4.3%, the highest level since 2021.
The CPI data for June showed a slight decrease of 0.1% in overall prices compared to the previous month and a slight increase of 0.1% in the core CPI, which does not include food and energy prices because they tend to change a lot. The report for June also showed that the annual inflation rate was 3% overall and 3.3% for core measures.
August 14 will be a key date for the cryptocurrency industry as the United States will release its latest Consumer Price Index (CPI) report. Economists expect the report to show a slight decline in inflation, with the headline CPI expected to fall from 3.0% to 2.9% in July. The core CPI, which does not include food and energy prices as they can be very unpredictable, is also expected to fall slightly from 3.3% to 3.2%.
Bitcoin Could Benefit From Rate Cuts
A decline in inflation could be good news for Bitcoin and altcoins as it affects the decisions made by the Federal Reserve.
At its July policy meeting, the Fed hinted that it might cut interest rates in September. Now, analysts are divided on whether that cut will be modest (by 0.25%) or larger (by 0.50%).
The latest forecast from the Cleveland Federal Reserve shows that the headline inflation rate (core CPI) is expected to be 0.24% for July, and the core inflation rate, which excludes food and energy prices, is expected to be 0.27%.
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Some banks, such as ING Bank and Citi, are predicting a rate cut of 0.50%, while others, such as Goldman Sachs and Societe Generale, are expecting a smaller reduction of 0.25%.
Cryptocurrencies typically increase in value when the Federal Reserve lowers interest rates. For example, in March 2020, during the pandemic, the Fed cut the official interest rate to zero. Subsequently, the value of Bitcoin skyrocketed, reaching an all-time high of $69,000 in 2021.
If the Fed does make a significant rate cut this time around, we could see Bitcoin price head towards the $70,000 mark by the weekend.
