As the United States inflation data for April released on May 10 beat expectations, Bitcoin (BTC) experienced a slight increase in value. The Consumer Price Index (CPI) showed a 4.9% year-on-year increase, a bit lower than the predicted 5.0%, indicating a continuing decline in U.S. inflation. This reduction in inflation is viewed as being in line with earlier forecasts from both the Federal Reserve and other external sources.
The CPI data has a significant influence on the Federal Reserve’s interest rate policy. Reacting to the latest economic data, financial markets now anticipate a pause in rate hikes for June. Federal Reserve Chair Jerome Powell has stated that economic data prints will greatly guide policy decisions.
A pause in rate hikes would be advantageous for cryptocurrencies, including Bitcoin, as risk assets could see an increased interest from investors due to eased financial conditions. Market expectations for a June pause jumped from 80% to 90% following the release of the CPI data.
However, investment research platform Game of Trades cautioned that the U.S. economy is not completely out of trouble yet, with the core CPI still being significantly high. The decrease in inflation has mainly been driven by the flexible part of the CPI, but the sticky part remains at an alarmingly elevated level.
Prior to the CPI release, on-chain analytics resource Material Indicators analyzed Binance order book composition to anticipate future BTC price movements. The analysis showed reduced volume near the current spot price, with bids attempting to protect the 200-week moving average (MA) just above $26,000.
Bitcoin has traded above the 200-week MA since mid-March and the 200-week MA is viewed as a critical support level for the cryptocurrency. However, the recent announcement of decreasing liquidity could lead to increased volatility in the Bitcoin market.
In conclusion, the decline of U.S. inflation and anticipation of a pause in June’s rate hike present an opportunity for risk assets, such as cryptocurrencies, to witness increased investor interest. However, the persistently high sticky part of the CPI and the possibility of increased BTC volatility due to reduced liquidity should also be kept in mind. Thus, investors must weigh these factors carefully while making decisions in the fast-paced world of cryptocurrencies.
Source: Cointelegraph
