In brief
- U.S. consumer prices fell 0.4% in June, denting rate hike expectations and marking the largest monthly decline since April 2020.
- Bitcoin and Ethereum trended higher, keeping one analyst’s $100,000 quarter-end price target within reach.
- Despite the positive inflation report, escalating conflict between the U.S. and Iran over the Strait of Hormuz continues to shadow the market.
Bitcoin ticked above $64,000 Tuesday morning, after a widely watched inflation gauge showed consumer prices cooling more than expected in June—bolstering expectations that the Federal Reserve will leave interest rates untouched at the conclusion of its next policy meeting.
The Consumer Price Index fell 0.4% month-over-month in June, the U.S. Bureau of Labor Statistics said on Tuesday. Economists expected the index, which tracks price changes across a broad range of goods and services, to post a 0.1% decline for the period.
Following the report’s release, Bitcoin steadied around $64,300, up 2.3% on the day, according to CoinGecko data. Bitcoin’s price surge nevertheless lagged behind Ethereum, which posted a 5.4% increase to around $1,890 during the same timeframe.
The largest one-month decrease in consumer prices since April 2020 was prompted by falling energy costs, the inflation snapshot indicated, offsetting a rise in food and shelter costs. On an annual basis, inflation slowed to 3.5%, decreasing for the first time in five months.
Fabian Dori, CIO at crypto bank Sygnum, told Decrypt that the government’s latest inflation numbers marked a hopeful sign for crypto, representing “the first real indication that the energy-driven impulse from the spring is fading rather than broadening.”
Cooler than expected
As conflict in the Middle East squeezed global energy supplies, investors braced for tighter monetary conditions, expecting the U.S. central bank to raise interest rates in an attempt to prevent associated price pressures from spreading to the broader economy.
So-called core inflation, which strips out volatile food and energy costs, clocked in at 2.6% in the 12 months through June, down from 2.9% the previous month. Earlier this year, the annual core measure had dipped to 2.5% in February before ticking back up in the spring.
Higher interest rates typically weigh on risk assets like stocks and crypto as the risk-free payouts on government bonds become relatively attractive. Conversely, expectations of accommodative monetary policy tend to buoy digital assets.
On Tuesday, traders grew more confident that the Fed would leave interest rates unchanged later this month at a target range of 3.5% to 3.75%, per CME FedWatch. Still, they expected the U.S. central bank to deliver a 25-basis-point hike in September.
As the war between the U.S., Israel, and Iran has clouded the Fed’s path to reining in inflation to its 2% goal, analysts—including Matt Mena, senior crypto research strategist at exchange-traded fund issuer 21Shares—have said that the conflict could shape crypto prices.
“As long as tensions with Iran don’t worsen, fundamentals and catalysts are starting to align for a $100k push by quarter-end,” he told Decrypt.
On Tuesday, the U.S. military said that it was preparing to reimpose its blockade on Iranian ports at 4 p.m. Eastern Time, per AP News. The development followed days of retaliatory strikes between the countries centered on control of the vital Strait of Hormuz.
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