Bitcoin, Ethereum up as U.S. inflation eases in May

The Consumer Price Index (CPI) increased 4 per cent in the 12 months through May, the Bureau of Labor Statistics (BLS) said Wednesday

The prices of cryptocurrencies edged up Tuesday after a widely-observed inflation gauge strengthened traders’ belief that the Federal Reserve could skip hiking rates at a key meeting later this week.

The Consumer Price Index (CPI) increased 4 per cent in the 12 months through May, the Bureau of Labor Statistics (BLS) said Wednesday, matching economists’ estimates.

The index, which tracks price movements across a wide range of goods and services, increased 0.1 per cent in May on a MoM basis—after a 0.4 per cent surge in April and a 0.1 per cent rise in March.

To me, this kind of sets the tone for ‘quiet on the U.S. macro front’ for the rest of the week, Amberdata’s Director of Derivatives Greg Magadini told Decrypt, explaining the Consumer Price Index print a wildcard compared to the Fed’s meeting or the BLS’s Producer Price Index, which is scheduled to come tomorrow.

Digital assets such as Bitcoin and Ethereum increased after the report, advancing 1.4 per cent to $26,300 and 0.8 per cent to $1,760 over the past day, respectively, as per CoinGecko.

Altcoins, such as Polygon, Cardano, and Solana also rose, led by XRP, which posted daily gains of 6.6 per cent at $0.55.

Increasing shelter costs contributed the most to the index’s rise in May, which increased 0.6 per cent on a monthly basis, the Bureau of Labor Statistics stated. However, the price of energy-related products and services dropped 3.6 per cent in May, mainly due to a drop in the price of fuel oil.

We will probably see a rally based on these numbers, but headwinds on these regulatory developments are still kind of (taking) precedent, MD at Wave Digital Assets Nauman Sheikh told Decrypt, citing the SEC’s most recent lawsuits against Binance and Coinbase that have shaken crypto markets.

While the Federal Reserve kept interest rates at near-zero in 2021 and held firm that inflation was transient as the economy ran red-hot, the Fed started an aggressive campaign to control inflation in March 2022.

Ratcheting interest rates to their highest levels since 2007, the Federal Reserve has delivered 10 successive rate raises till now in its fight against increasing consumer prices.

Tuesday’s report comes a year after inflation peaked near 9 per cent last June, the sharpest annual pace witnessed in forty years—and much higher than the Federal Reserve’s goal of 2 per cent.

As inflation shows indications of steadily cooling, expectation among traders has increased that the Fed could keep rates where they are presently at. As per the CME Group’s FedWatch Tool, there is a 97 per cent probability the Fed holds rates steady on Wednesday, a noteworthy rise from 75 per cent the day before.

It would be the first time the Fed has decided not to continue tightening monetary policy in 18 months. By hiking interest rates, the Fed makes it costlier for businesses and consumers to borrow—from credit cards to car loans—thus cooling the economy.

Apart from affecting the economy, rate raises impact the prices of assets, whether that is cryptocurrencies, stocks, or U.S. Treasuries. As interest rates increase, risk assets such as stocks and crypto usually drop, as cash reserves and government debt become more lucrative investments by comparison.