The ghost of the highest inflation since 1981 gets traders pricing in three more 0.5% rate hikes by October.
Bitcoin (BTC) fell sharply on June 10 after surprisingly high inflation data from the United States rattled markets before the Wall Street open.
BTC/USD 1-hour candle chart (Bitstamp). Source: TradingView
Trader: Bitcoin will be “painful” if $29,300 fails to hold
Data from Cointelegraph Markets Pro and TradingView tracked a $600 dive for BTC/USD as May’s Consumer Price Index (CPI) figures hit.
Despite hopes that the worst of the inflationary period was over, May’s CPI print came in at 1% month-on-month and 8.6% year-on-year — a return to levels not seen since 1981. Estimates had only forecast around half as much of a jump for last month.
Bitcoin immediately felt the pinch as the market appeared to balk at the prospect of further monetary tightening to tame increasingly aggressive price increases.
According to Bloomberg, traders were now pricing in three 50-basis-point key interest rate hikes from the U.S. Federal Reserve in June, July and September, respectively.
Hotter-than expected US #inflation boosts chances for more Fed hikes. Trader now prices in 3 half-point rate hikes and and two more small steps. Now a key interest rate of almost 3% at the end of the year is priced in. pic.twitter.com/RYUPgK1qbt
— Holger Zschaepitz (@Schuldensuehner) June 10, 2022
Reacting, Bitcoin traders were keen to see how various points inside the current narrow trading range would fare should volatility continue. For Cointelegraph contributor Michaël van de Poppe, the key area was around $29,300.
“Let’s see how Bitcoin is reacting at this level of support,” he told Twitter followers after the CPI event.
“If we drop below, it’s going to be painful.”
Popular commentator WhalePanda, meanwhile, cautioned panicking investors over rethinking their BTC allocation due to macro circumstances.
“Dumping your Bitcoin because inflation is higher than expected is one of the dumbest things you could ever do,” he wrote.
The U.S. announced that the annual rate of unseasonably adjusted CPI in May was 8.6%, the highest since December 1981. Bitcoin fell below $30,000 following the release of higher-than-expected U.S. CPI. https://t.co/WkNaJLclsx
— Wu Blockchain (@WuBlockchain) June 10, 2022
By contrast, the Russian ruble gained 5% on the day as the country’s central bank adopted the opposite trajectory to the Fed, cutting rates to levels not seen since before the war with Ukraine began.
In further comments on social media, Anthony Pompliano, co-founder of Morgan Creek Digital, described the U.S. monetary policy of recent times as “undisciplined,” calling inflation a “national crisis.”
“The last time inflation was this high in America, they literally changed the methodology of CPI,” he added.
U.S. inflation chart. Source: Federal Reserve
U.S. dollar rebounds in further pain for crypto
One asset not suffering at all from CPI, meanwhile, was the U.S. dollar.
Related: $30K BTC price has ‘severe impact’ on Bitcoin miner profits — analysis
The latest data from the U.S. dollar index (DXY), which measures USD strength against a basket of trading partner currencies, showed a previous downtrend reversing up sharply, with inflation only adding to its trajectory.
The result was likely a further headwind for both Bitcoin and risk assets more broadly ahead of the U.S. equities open.
At the time of writing, DXY was at 103.9 points, once more closing in on what were 20-year highs of 105 seen last month.
U.S. dollar index (CPI) 1-day candle chart. Source: TradingView
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