A soft U.S. inflation report expected later today could provide a favorable environment for risk assets, including bitcoin (BTC), but it’s unlikely to trigger a major surge in prices.
The U.S. Labor Department will release the January consumer price index (CPI) report at 13:30 UTC. Analysts anticipate a 0.3% increase in the month-over-month cost of living, which would represent a slight slowdown from December’s 0.4% rise, according to estimates from Reuters and FXStreet. The annual CPI is projected to remain at 2.9%, unchanged from the prior month.
Core inflation, which excludes volatile food and energy costs, is expected to rise by 0.3% month-over-month, up from 0.2% in December. This would result in an annualized figure of 3.1%, down slightly from 3.2% in December.
If the data comes in weaker than expected, particularly in core inflation, it could boost expectations of further Federal Reserve (Fed) rate cuts. This could lead to a weaker U.S. dollar and lower Treasury yields, ultimately benefiting riskier assets like bitcoin. The market currently assigns a 54% probability, according to CME’s FedWatch tool, that the Fed will either reduce rates or keep them unchanged this year.
However, while this could provide some upside potential for BTC, it is unlikely to trigger a major breakout from its current range of $90,000 to $110,000.
Market indicators suggest that inflationary pressures may resurge in the coming months, driven in part by concerns over trade wars. This could limit the Fed’s ability to implement aggressive rate cuts. Mott Capital Management’s data indicates that two-year inflation swaps have risen to nearly 2.8%, their highest level since early 2023, signaling that investors are preparing for higher inflation in the future.
Some investment banks believe that even a soft CPI reading won’t lead the Fed to shift its hawkish stance. In testimony before Congress, Chairman Jerome Powell stated that the central bank is not in a rush to cut rates.
RBC’s weekly note indicated that while inflation may ease somewhat, it won’t be enough to prompt further rate cuts. BlackRock also pointed out that persistent inflation in services would likely keep the Fed from loosening its policy anytime soon.
If the CPI report is hotter than expected, bitcoin could see further downward pressure, potentially testing the lower end of its $90,000 to $110,000 price range.
