The latest US Consumer Price Index (CPI) report for December 2024 has revealed a 2.9% inflation rate, marking a 0.2% increase from November’s 2.7%. This marks the third consecutive monthly rise, signaling ongoing inflationary pressures. The report is significant as it is expected to influence the Federal Reserve’s monetary policy decisions during its upcoming FOMC meeting later this month.
Bitcoin Price Reaction to US CPI Data
Despite the inflation increase, Bitcoin prices surged, climbing above the $98.5K mark, as the CPI data came in line with market expectations. While the core CPI inflation, a key measure of inflation excluding food and energy, came in at 0.2%, just as predicted, it was slightly lower than the 0.3% recorded in the previous month. The year-over-year (YoY) Core CPI, which was anticipated to hold steady at 3.3%, actually dropped to 3.2%. These softer-than-expected core inflation figures likely contributed to the optimism in the market.
As a result of the CPI release and a drop in the US dollar index (DXY) below 109, Bitcoin experienced a price boost, continuing its recovery momentum. Additionally, the 10-year US Treasury yield decreased by 0.11%, further contributing to risk appetite among investors. Bitcoin price rose by 2%, trading at $98,700, with the 24-hour low at $95,330 and high at $98,650.
Impact on the Federal Reserve’s Rate Decisions
The US CPI and Producer Price Index (PPI) data will play a crucial role in the Federal Reserve’s decision-making during its next meeting on January 28-29. Experts suggest that the softer inflation readings might lessen the likelihood of a further reduction in interest rates. The PPI data, also released this week, showed a 3.3% inflation rate, slightly lower than the expected 3.5%, with the core PPI also coming in cooler than expected at 3.5%.
The easing inflationary data has helped pause the recent surge in US Treasury bond yields and sparked increased investor interest in riskier assets, such as Bitcoin.
Looking Ahead: Volatility Ahead for Crypto Market?
Despite the positive movement in Bitcoin’s price, market experts remain cautious, predicting continued volatility in the crypto space. QCP Capital, a digital asset investment firm, warned about potential downside risks, particularly for Bitcoin, noting that the $90K price level has been tested multiple times in recent weeks. The uncertainty surrounding the upcoming inauguration of President Donald Trump on January 20, 2025, also adds to the volatility, as Trump’s potential crypto-friendly policies remain speculative.
While the crypto market remains optimistic about the future, both Bitcoin and the broader crypto market are expected to experience further fluctuations, especially in light of ongoing inflation concerns and global economic factors.
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