Why Bitcoin Traders Are Eyeing This Week's Upcoming US Inflation Print

Bitcoin traders are keenly observing upcoming inflation data that could influence the Federal Reserve’s stance—whether it adopts a hawkish or dovish pivot to combat rising prices. While the market is torn between optimism over a potential resolution to the U.S. government shutdown and concerns about reduced risk appetite, the spotlight is on Thursday's inflation report to signal the market's next major move.

Following the October 10 crash—which resulted in a $19 billion liquidation wipeout—market sentiment slightly improved last week due to easing geopolitical tensions and firmer technical indicators. However, this optimism has been tempered by the looming U.S. October Consumer Price Index (CPI) report, a significant marker given its status as the second inflation release since the government's 43-day shutdown commenced.

According to FXStreet’s consensus estimates, October year-over-year inflation is anticipated to hold steady at 3%. However, there are uncertainties about the release timing of the CPI data, as noted by Tim Sun, Senior Researcher at HashKey Group. Sun explained that the October inflation figure, along with any delayed September data, would be pivotal in determining traders’ pricing of a potential December rate cut.

Per the FedWatch tool, the likelihood of a December rate cut has declined to 67.9%, down from 85% last week. This reflects Federal Reserve Chairman Jerome Powell’s hawkish tone in recent weeks. A cooler-than-expected CPI figure might increase expectations of a more dovish Federal Reserve, likely weakening the U.S. dollar and bolstering risk assets like Bitcoin. Conversely, a higher inflation reading could intensify dollar strength and exacerbate Bitcoin’s losses.

Bitcoin’s price has dropped 2.7% to $103,600 in the past 24 hours, erasing gains from Sunday trading, according to CoinGecko. Tim Sun attributed the decline to a broad reduction in risk appetite, highlighting a noticeable shift of capital from tech stocks to stable blue-chip investments. This signifies growing investor caution amidst persistent macro and geopolitical uncertainties.

The market remains constrained by weak sentiment, according to Sun. He noted that any clear signals of a rate-cut trajectory or expectations of liquidity easing could lead to a renewed risk appetite. This would, in turn, provide direct support for a price rebound across various risk assets, including Bitcoin.