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Impact of U.S. Consumer Price Index on Crypto Markets
The announcement by the U.S. Bureau of Labor Statistics regarding the Consumer Price Index (CPI) had a significant impact on the prices of Bitcoin and Ethereum. Both cryptocurrencies experienced a sharp decline of more than 2% immediately following the news that the CPI had increased by 0.4% in March. This indicates that inflation in the previous month remained at 3.5%, consistent with the rate in February.
As a result of this news, the price of Bitcoin fell below $68,000, while Ethereum faced the threat of dropping below $3,400. These two assets, which dominate the digital asset market with a combined market capitalization of 65% of $2.7 trillion, are closely watched indicators of market sentiment and investor confidence.
The rise in inflation rates can have negative implications for both crypto markets and traditional stocks. High inflation typically discourages the U.S. Federal Reserve from lowering federal interest rates, which in turn strengthens the appeal of traditional safe-haven assets such as treasury bonds over cryptocurrencies. The prolonged period of high interest rates can lead to increased volatility and uncertainty in the market.
Analysts’ Predictions and Federal Reserve Response
Before the announcement of the CPI data, analysts had forecasted that inflation would rise by 3.4% compared to the previous year. Additionally, the core CPI inflation rate, which excludes volatile food and energy prices, was expected to decrease from 3.8% to 3.7% over the same period.
Despite the concerning inflation figures, Federal Reserve Chairman Jerome Powell remains cautious about the prospect of raising interest rates in the near future. Powell emphasized that while the recent inflation readings are noteworthy, it is premature to assume a significant trend based on these results. He reassured that there is no urgency to lower interest rates as well.
In a separate report released by the U.S. Bureau of Labor Statistics regarding employment data, it was revealed that payrolls had increased in March, with the unemployment rate remaining relatively stable at 3.8%. However, this news was met with skepticism by crypto markets, which experienced a slump in response to the data.
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