The Consumer Price Index (CPI) report from last week caused a shift in the financial markets and served as another reminder of just how intertwined the economy is. However, what impact does news about inflation have on the cryptocurrency market and the US dollar’s value?
Because it affects market mood and monetary policy, inflation news has a big impact on both cryptocurrencies and the dollar. Demand for cryptocurrencies may rise when inflation increases because some investors view them as a hedge against inflation. Because of speculative trading, cryptocurrencies typically react more volatilely to news about inflation. On the other side, if inflation raises expectations for higher rates, the dollar may suffer. Higher interest rates may encourage foreign investment, which could enhance the dollar, but over time, a sustained increase in inflation could devalue the currency.
According to the report from last week, the CPI grew by 0.2% in August. The CPI increased by 2.5% year over year in July, compared to estimates of 2.6% and 2.9% increases. Tuesday, September 17, 2024, saw a spike in bitcoin to $61,000 in the early hours of the US session, as cryptocurrencies gained traction ahead of today’s crucial Federal Reserve meeting. Investors had priced in a 71% possibility that the Federal Reserve Committee would reduce its benchmark fed funds rate range to 5%–5.25% by 25 basis points before the meeting and a 29% chance that the central bank would cut by 50 basis points to 4.75% – 5%.
Bitcoin has rallied, but it is still stuck in a small trading range and is not expected to move higher before today’s Federal Open Market Committee meeting.
The time is right for cryptocurrency aficionados and investors to get involved in the market, especially in light of potential changes in monetary policy that could spur growth. This serves as a helpful reminder of cryptocurrencies’ advantages in the present financial environment. Those who invest in cryptocurrency can diversify their holdings and reap the long-term potential of digital assets.
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