Weekly Bitcoin Fluctuations: Four Potential Factors Influencing Cryptocurrency Markets
The upcoming week promises to be an exciting one for investors, as a series of crucial economic reports and the Federal Reserve's (Fed) decision in September are set to influence market expectations.
Firstly, the Consumer Price Index (CPI) report for July, excluding food and energy, is due on Tuesday. This report is one of two primary gauges of inflation and reflects price trends across the economy, shaping sentiment. The CPI report is expected to come in firmer at 2.8% from 2.7%.
On Thursday, the Producer Price Index (PPI) report for July will be released. The PPI report, another leading indicator of inflation, reflects input costs for producers and manufacturers, and impacts retail prices.
The CPI and PPI reports, along with the upcoming inflation data and consumer sentiment reports, will play a significant role in influencing the Fed's September decision. Currently, the current probability of a September rate cut, according to the CME futures Fed Watch tool, stands at 88%.
The Fed is expected to cut interest rates by about 0.25 percentage points in September, although this is not guaranteed—there is some dissent within the Fed and only about a two-thirds estimated probability of a cut. Fed Chair Jerome Powell is anticipated to acknowledge the possibility of cuts during his Jackson Hole speech but might avoid explicit commitments or hints.
Inflation remains above the Fed's 2% target and may be rising due to tariffs, which complicates the outlook. If inflation data shows persistent upward pressure, the Fed might be less inclined to cut rates, increasing market uncertainty.
Weakening consumer sentiment could signal slower economic growth, supporting the case for rate cuts to stimulate the economy. Conversely, stronger sentiment might reduce pressure on the Fed to ease monetary policy.
The convergence of these data and policy signals could cause volatility in both crypto and stock markets as investors adjust their risk appetite.
In the stock market, anticipation of a rate cut typically supports stock prices by lowering borrowing costs and boosting earnings prospects. However, if inflation surprises on the upside or Powell signals caution, markets could pull back. Unclear guidance may increase volatility as investors adjust to mixed signals.
Cryptocurrencies often react to macroeconomic factors linked to risk sentiment and monetary policy. An expected Fed rate cut might encourage more risk-taking, potentially lifting crypto prices. However, uncertainty about inflation persistence or Fed caution could heighten volatility and selling pressure in crypto.
Elsewhere in the crypto market, only Bitcoin and Ethereum were making significant moves, while the rest of the altcoins were flat. Bitcoin jumped more than 3% early on Monday to a four-week high of $121,850, approaching its all-time high of $122,765. Ethereum surged to an almost four-year high of $4,320 in early trading this week. Ethereum is now just 11.5% away from its 2021 all-time high of $4,878.
Nearing completion is earnings season, and eyes are shifting to Nvidia, scheduled to report on August 27. July's retail sales data will be released on Friday. The retail sales data indicates how much consumers are spending on durable and non-durable goods.
The consumer sentiment and consumer inflation expectations preliminary readings, summarizing the findings of a monthly survey measuring consumer confidence and long-term inflation expectations in the US, will be released following July's retail sales data.
Hyperliquid and Chainlink were the exceptions, adding more than 4% on the day. The total market capitalization of cryptocurrencies is currently at an all-time high of $4.13 trillion.
In summary, if inflation and sentiment data lean towards economic weakness, the September Fed rate cut is more likely, supporting both stock and crypto markets. If inflation surprises higher or Powell signals restraint, markets could face increased volatility or downward pressure ahead of the decision.
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