All eyes in the market watch in anticipation of reactions to the latest Consumer Price Index Report with July’s CPI figure calculated at 5.4% year on year.
Markets appeared to be spooked, with investors seemingly rallying into Bitcoin as the stock market flatlines and U.S. treasury bond holders despair.
Bitcoin (BTC) instantly surged past $46,000 resistance following the Consumer Price Index (CPI) report, and has been widely touted as a digital gold hedge on inflation by leading crypto evangelists such as Senator Lummis.
Analysts had speculated that real terms inflation might fall down to 5.3% from 5.4% in a move that would reassure worried investors – a decline could have lend a noticeable strengthening to the USD – but the unchanged CPI leaves things in flux.
However, the pessimistic expectations in the aftermath of the covid pandemic economic stress has lead to a bullish fever amongst crypto markets with Bitcoin breaking the $46,000 resistance it battled this morning before the report announcement.
Downward moves in the stock markets point to serious inflationary concerns amongst investors, and bond markets are closely watching moves in yields citing potential distortion from the fed and rising caution about increased inflation.
The market conscience is also mulling over reactions at the Fed to the CPI news, the centralised treasury aims to maintain a two percent inflation on average over time, and it defines that goal using the separate Personal Consumption Expenditures index.
But the CPI is a more immediate on the pulse measure of real term inflation in prices, so carries a strong influence as it feeds into the Fed data.
Price action in crypto responds strongly to inflationary data, indeed, the colloquially known base effect played a fundamental role in the January bull run – so the high CPI can be considered very bullish news for the industry.
But the base effect is now disappearing, as prices of inputs and consumer goods turned a corner as the American economy has re-opened from the covid pandemic.
The high level of inflation in the CPI poses a serious threat to long-term inflation highlighted the President of the Federal Bank of Chicago.
“The question is more: what the inflation outlook is going to be into the next year, 2022, 2023,” Said Charles Evans on a Tuesday press call.
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