Anticipation for U.S. Inflation Report and Its Impact on Bitcoin
A much-anticipated U.S. inflation report set to be released later today could positively influence risk assets, including bitcoin (BTC). However, those hoping for significant bullish movements may find themselves disappointed.
The Labor Department is scheduled to unveil January’s Consumer Price Index (CPI) report today at 13:30 UTC. Analysts expect the report to indicate a 0.3% month-on-month increase in the cost of living for January, a slight slowdown from December’s 0.4% rise, based on estimates from Reuters as tracked by FXStreet. The year-over-year figure is predicted to align with December’s 2.9% reading.
When it comes to core inflation, which excludes the more volatile food and energy sectors, forecasts suggest a rise to 0.3% month-over-month, up from December’s 0.2%. This would result in an annualized figure of 3.1%, slightly down from December’s 3.2%.
If the data comes in lower than expected—especially the core inflation figure—it may enhance expectations for further interest rate cuts from the Federal Reserve (Fed). Such a scenario could lead to lower Treasury yields and a weakened dollar index, ultimately boosting demand for riskier assets like bitcoin. According to the CME’s FedWatch tool, the market currently sees a 54% chance that the Fed will either make one interest rate cut or refrain from any cuts this year.
While potential changes in Fed rate policies could provide a lift for BTC, it is improbable that this will be the singular catalyst for a breakout from the ongoing consolidation phase between $90,000 and $110,000. This is largely due to forward-looking market indicators suggesting increased inflation in the coming months, fueled by ongoing trade war concerns, which imply that the Fed may face limitations in enacting aggressive rate cuts.
Data monitored by Mott Capital Management reveals that two-year inflation swaps have surged to nearly 2.8%, the highest level since early 2023. The five-year swap is exhibiting a similar upward trajectory. A rise in inflation swaps indicates market expectations of increasing inflation rates, leading investors to pay a higher premium to safeguard against potential losses in purchasing power by engaging in swap contracts linked to CPI. Essentially, the ongoing increase in these metrics suggests that progress towards the Fed’s 2% inflation target has stalled, and price pressures are likely to mount in the coming years, possibly due to the implications of tariffs introduced during Trump’s administration.
Moreover, some investment banks are cautious, asserting that a soft reading for January’s CPI may not sway the Fed from its current hawkish stance on rates. In his recent testimony to Congress, Chairman Jerome Powell emphasized that the central bank is not rushing to implement rate cuts. “We don’t expect that progress on inflation will be adequate to prompt additional interest rate cuts from the Fed this year,” RBC noted in a weekly report, emphasizing that January’s data will likely reflect limited easing in price pressures.
BlackRock further commented on the situation, indicating that persistent inflation within the services sector will compel the Fed to maintain elevated interest rates for an extended period. “We anticipate the U.S. CPI for January will be released this week. Despite signs of easing inflation pressures evident in December’s CPI report, wage growth continues to outpace levels that would allow inflation to return to the Federal Reserve’s 2% target,” BlackRock stated. “We foresee persistent services inflation forcing the Fed to keep rates higher for longer.”
Lastly, should the CPI report indicate higher-than-expected inflation, BTC could very well trend closer to the lower end of its $90K-$110K trading range.
