Hot CPI Report Hammers Crypto

The latest Consumer Price Index (CPI) report for January had an adverse effect on Bitcoin, as the inflation figures came in higher than anticipated. The monthly CPI increased by 0.3%, and the annual rate was reported at 3.1%, surpassing expectations by 0.1% and 0.3%, respectively.

According to the U.S. Bureau of Labor Statistics, the shelter index was a significant contributor to the monthly increase, rising by 0.6% and accounting for more than two-thirds of the overall increase in all items. The food index saw a 0.4% rise, with both the food at home and food away from home indices going up by 0.4% and 0.5%, respectively. On the contrary, the energy index dropped by 0.9% for the month, largely due to a decrease in the gasoline index.

Following the release of the CPI data, market participants adjusted their expectations regarding the Federal Reserve’s interest rate cuts, pushing the anticipated timing from March to later in the year. The CME Group’s FedWatch Tool indicated that the likelihood of a rate cut in March had fallen to just 8.5% from 17.5% on February 12th.

The Kobeissi Letter, a trading analysis platform, commented on the situation via X (formerly Twitter), noting the CPI report was “much hotter than expected” across the board. The expectation for core CPI to decrease was unmet, and the overall CPI inflation rate exceeded predictions by 20 basis points. The analysis suggested that a rate cut in March had become highly unlikely.

The Kobeissi Letter further mentioned that the Federal Reserve’s primary concern is to avoid a premature rate cut that would otherwise stimulate risk assets, including cryptocurrencies.