Key Points:
- Soft wholesale inflation data pushed crypto prices higher early on Wednesday.
- Questions remain whether the recent gains can be maintained, as previous bullish news didn’t lead to positive reactions in prices.
- Tomorrow’s release of consumer inflation numbers could impact market sentiment.
Soft U.S. inflation data for August has, at least momentarily, propelled crypto prices upwards. The Producer Price Index (PPI) saw a month-over-month drop of 0.1% in August, contrary to predictions of a 0.3% increase, and a previous rise of 0.9%. Year-over-year, the PPI indicated a 2.6% growth, notably down from 3.1%, and significantly below the forecast of 3.3%.
The core PPI, excluding food and energy, also fell by 0.1% in August versus an expected increase of 0.3% and a July rise of 0.7%. For the year, core PPI climbed by just 2.8%, against estimates of 3.5% and a previous 3.4% in July.
The reaction in crypto markets was immediate, with Bitcoin (BTC) climbing to approximately $113,700 at the time of this report, representing a more than 1% increase over the past 24 hours. Similarly, Ether (ETH) displayed comparable gains, while Solana’s SOL outperformed with a 3.3% rise to $224.
This latest PPI report followed a significant PPI increase in July, which reignited inflation worries amidst a rapidly deteriorating labor market. Traders are set to observe tomorrow’s Consumer Price Index (CPI), a vital metric influencing the Federal Reserve’s upcoming interest rate decisions.
“That’s exactly the PPI data we should cheer for, assuming that it will help to suppress CPI inflation, end the recent streak of re-inflation, and allow the Fed to focus explicitly on recent labor market weakness,” stated Caleb Franzen, the founder of Cubic Analytics in an X post.
All factors considered, it’s generally presumed that more accessible monetary policy benefits risk assets, including cryptocurrency. Recent weeks have seen Federal Reserve Chair Jerome Powell shift from hawkish to dovish, alongside a series of weak economic reports suggesting a need for upcoming rate reductions. However, Bitcoin has shown volatility—rising with favorable news before retracting.
Bitcoin’s behavior perplexes observers, especially as gold has reacted predictably, reaching what appears to be fresh record highs with each new dovish announcement.
While traders largely anticipate a 25 basis point rate cut at next week’s Fed meeting, expectations for a potential 50 basis point reduction have increased. As per the CME FedWatch, the likelihood of a 50-point cut has surged to 10%, up from 7% prior to the PPI report and 0% one week ago.
