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US CPI still sticky - how will Bitcoin react?

GB Market Commentary 12/04/2023

by Marcus Sotiriou

Bitcoin has continued its impressive climb over the past week, as it has broken above $30k in anticipation of today’s inflation reading, which was expected to be 5.2% YoY. US CPI has just been released at time of writing and has come in lower than the expected reading by 0.2%, as March CPI shows 5.0% YoY.

This means that inflation fell by 100 basis points in March, from 6.0% to 5.0%, which is the biggest drop in the inflation rate over the course of a month since April 2020. Also, the inflation rate is now at its lowest since June 2021.

However, US Core CPI is in-line with expectations at 5.6% YoY and 0.4% MoM, which means it rose in March as the previous month’s reading was 5.5%. This means that the next Federal Reserve rate hike is likely still going to go ahead, and we have seen 23 consecutive months of inflation above 5%.

We are experiencing the significant cost of free money and 0% interest rates which led to a boon for digital asset trading, but the fact that YoY headline inflation dropped by 100 basis points from February to March is a very promising sign for stocks and crypto going forward. Federal Reserve Chairman Jerome Powell consistently refers to persistent and sticky inflation as the biggest hurdle facing the US in regard to economic policy, so we may actually start to see rate cuts sooner than many anticipate.

In the short term though, we should expect hesitancy in digital asset trading, as we have just experienced an almost 100% move up for Bitcoin in the past few months, in addition to reaching a key level of resistance at $30k, leading to an area for digital asset trading participants to potentially take profit during these uncertain times.

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