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Bitcoin Rises as Lower April Inflation Strengthens Rate Pause Narrative

2 mins
Updated by Geraint Price
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In Brief

  • Bitcoin traded at $27,900 after lower-than-expected U.S. inflation of 4.9%.
  • Strong April wage growth may trigger a further increase in interest rates.
  • New York Fed predicts no rate cuts this year.
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Bitcoin (BTC) incurs slight upside volatility as U.S. Consumer Price Index (CPI) for April misses estimates, which may strengthen the case for a Federal Reserve (Fed) rate hike pause later this year.

The asset usually shows volatility from roughly six hours before the U.S. CPI announcement. However, like the S&P 500 and Dow Jones, it traded fairly flat in premarket trading. 

Cryptos Trade Flat, But Analysts Are Cautious

Its current price is around $27,981, buoyed 1.2% by lower-than-expected 4.9% headline inflation, Ethereum (ETH) is also muted at $1,840, according to Coingecko. Lower cap cryptos like Cardano and Dogecoin were down 0.2% and 0.5%.

Analysts estimated April’s annual U.S. headline CPI to be steady at 5%, with the core inflation, excluding volatile food and energy prices, going up to 5.5%.

Despite combining in lower, headline inflation is still far off the Fed’s 2% target. Core inflation matched expectations, coming in at 5.5% annually and rising 0.4% monthly.

Lower CPI U.S. Headline Inflation
U.S. Headline Inflation | Source: TradingEconomics

After the news, Bitcoin, whose 30-day correlation with the Nasdaq has reached 0.5, tracked U.S. futures upward. Treasury yields fell.

According to the MSCI World Index, which fell 0.1% this morning, most stocks have traded sideways in the past month, awaiting news from the Federal Reserve. 

The Fed said on May 4 that future rate hikes would depend on forthcoming data. It has increased interest rates by about 500 basis points in the last 14 months. Last month’s nonfarm payrolls report revealed hourly wage increases that may encourage more increases.

Fed terminal rate probability
CME Target Rate Predictions | Source: CME Group

At press time, markets still expect a rate pause at the Fed’s next meeting.

New York Fed Does Not Foresee Rate Cuts

New York Fed president John Williams said yesterday he doesn’t expect inflation to reach 2% before the next two years. 

Furthermore, his baseline forecasts do not predict any rate cuts this year.

“Because of the lag between policy actions and their effects, it will take time for the [Federal Open Market Committee’s] actions to restore balance to the economy and return inflation to our 2% target.” 

Asian stocks declined this morning as investors offloaded risk positions ahead of the CPI news. Tech stocks started the slide as an index tracking Chinese state enterprises fell over 1%. Shares of Tencent Holdings recorded their third straight day of decline.

For BeInCrypto’s latest Bitcoin (BTC) analysis, click here.

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David Thomas
David Thomas graduated from the University of Kwa-Zulu Natal in Durban, South Africa, with an Honors degree in electronic engineering. He worked as an engineer for eight years, developing software for industrial processes at South African automation specialist Autotronix (Pty) Ltd., mining control systems for AngloGold Ashanti, and consumer products at Inhep Digital Security, a domestic security company wholly owned by Swedish conglomerate Assa Abloy. He has experience writing software in C,...