Bitcoin dipped under $78,000 on Wednesday, retracing earlier gains as new US inflation data fueled doubts over potential interest rate cuts by the Federal Reserve.
PCE data revives rate hike concerns
The largest cryptocurrency had soared to nearly $81,235 within the session, continuing a strong August rally. However, the gains faded sharply following the release of July’s Personal Consumption Expenditures (PCE) data. The correction temporarily sent Bitcoin towards $78,000, wiping out much of its daily progress.
According to the US Bureau of Economic Analysis (BEA), the PCE price index increased 0.2% in July compared to the previous month, after a decline of 0.1% in June. On a year-over-year basis, headline inflation reached 3.7%, slightly above forecasts of 3.6% cited by several market reports.
Core PCE, which omits food and energy prices due to their volatility, also posted a 0.2% monthly rise. The annualized core reading held steady at 3.3%.
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AAPL| Inflation Metric | July 2024 | June 2024 | Market Expectation |
|---|---|---|---|
| PCE YoY | 3.7% | N/A | 3.6% |
| PCE MoM | 0.2% | -0.1% | N/A |
| Core PCE YoY | 3.3% | 3.3% | N/A |
| Core PCE MoM | 0.2% | N/A | N/A |
Market observers viewed the data as a sign that inflation risks remain, potentially limiting the Fed’s ability to lower interest rates in the near future.
Fed policy outlook weighs on crypto
Persistent inflation places pressure on cryptocurrencies, since it can prompt higher interest rates and sustained Treasury yields. Coinpaper’s review of the recent Federal Reserve minutes revealed policymakers are actively considering further tightening if price pressures remain stubbornly high.
In the days leading up to the report, Bitcoin had rallied alongside gold, supported by falling bond yields, a softer dollar, and improved liquidity in government securities markets. These factors had pushed BTC more than 28% higher for August before the inflation release reversed those gains.
Wednesday’s PCE numbers shifted market attention back to the Fed’s next move. Higher inflation typically underpins stronger bond yields and increases the likelihood of continued policy tightening, which historically tempers risk appetite for speculative assets such as Bitcoin.
Short-term volatility remains
The latest reversal underscored Bitcoin’s sensitivity to macroeconomic changes. Although July’s Consumer Price Index (CPI) report showed slightly cooler inflation, Bitcoin failed to sustain momentum, reflecting the complexity of predicting the cryptocurrency’s direction based solely on macroeconomic figures.
Coinpaper, a digital asset research and news outlet, explained in its long-term Bitcoin guide that volatility and heightened macroeconomic uncertainty are key risks for those considering BTC as part of an investment portfolio.
Bitcoin’s next challenge will be defending its recent breakout, especially if inflation remains sticky and the Fed adopts a more hawkish stance. If Treasury yields continue to climb, reclaiming the $80,000 level could remain elusive for the foreseeable future.
Persistent inflation in the US can keep Treasury yields elevated, limiting the Federal Reserve’s scope to lower interest rates and adding further volatility to assets like Bitcoin.
