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Bitcoin Rallies as PCE Price Index Comes in Below Expectations

3 mins
Updated by Ryan Boltman
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In Brief

  • PCE Price Index rose 0.2% in Oct. 2022, falling slightly short of analysts' 0.3% prediction.
  • This, coupled with slightly dovish sentiments in yesterday's Fed speech, sparked a rally in equities and headline cryptocurrencies.
  • In the short-to-medium term, cryptos could follow macroeconomic indicators as investor sentiment continues to suffer from the fallout of the FTX collapse.
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Bitcoin rose 1.5% as U.S. Core Personal Consumption Expenditure Price Index for Oct. 2022 came in 0.1% lower than analysts’ estimates of 0.3%.

The PCE Price Index, which measures changes in consumer spending and is released monthly by the U.S. Bureau of Economic Analysis, revealed that prices for goods and services rose 0.2% month-on-month in Oct. 2022. The so-called core PCE Price Index excludes food and energy prices.

PCE Price Index of 0.2% Causes Bitcoin to Rally

Shortly after the release of the core PCE Price Index, Bitcoin was up 1.5% in the previous 24 hours to cross the psychological $17,000 mark before falling to $16,988.

BTC/USD | Source: TradingView

The world’s largest cryptocurrency continued a rally that started after Fed chair Jerome Powell hinted in a Nov. 30, 2022, speech that the central bank could slow down its interest rate hikes at the next meeting of the Federal Open Markets Committee in Dec. 2022.

“It makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down,” Powell said.

Ethereum was also up roughly 0.3% to trade at $1,268.49 at press time, with Solana racking gains of 1.2% before falling back to 0.5%.

Crypto heatmap
Source: Coin360

The S&P 500 increased by 5.38%, and the Dow Jones Industrial Average rose by 5.67%. The Dow later fell by 400 points in anticipation of U.S. employment data, due for release on Dec. 2, 2022.

PCE Price Index paints a broader picture of macroeconomic conditions

The latest PCE data also revealed that the core PCE Price Index was up 5% from a year ago, compared to a year-on-year increase of 5.2% in Sep. 2022.

PCE Price Index Chart
Source: YCharts

The Federal Reserve began using the PCE Price Index as the headline indicator of U.S. inflation levels in 2012. Unlike its predecessor, the Consumer Price Index, the PCE Price Index tracks a broader range of goods and services that fall under the categories of durable goods and non-durable goods. It is, however, unable to capture minor fluctuations in the prices of everyday items like cereal and clothing.

Despite CPI not being the Fed’s leading indicator of inflation for the last ten years, investors are still happy to mine monthly CPI numbers for nuggets of optimism, which is often reflected in stock market behavior. Bitcoin rallied in tandem with S&P 500 and Dow Jones futures on Nov. 10, 2022, as the so-called core CPI for Oct. 2022 came 0.3% below market expectations at 0.3%.

PCE Price Index rally could mark a short-term upside for Bitcoin

Bitcoin’s rally in tandem with the stock market could be a sign that the cryptocurrency may be more susceptible to macroeconomic movements in the medium to short term, even as the industry grapples with the fallout from the collapse of major crypto exchange FTX.

Its rally to $17,000 plus in early trading on Dec. 1, 2022, was its highest level since the Bahamian exchange collapsed under the weight of mass withdrawals in early Nov. 2022.

“The risk relief rally is coming at just the right time for Bitcoin,” said Craig Erlam of Oanda. 

Eight CEO and technical analyst Michaël van de Poppe noted that the news was positive.

But some experts still believe that Bitcoin is unlikely to take off on a major rally soon and will face resistance from the June 2022 price of $17,600.

Before the collapse of FTX, Bitcoin tracked the stock markets closely, as investors in both stocks and crypto danced to the tune of the Federal Reserve’s tightening monetary policy. The central bank has increased interest rates six times in 2022 in response to a booming U.S. economy, fueled partly by excess pandemic-era stimulus money.

For Be[In]Crypto’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,...