Will Inflation Cool To Set Crypto Markets On Fire?
Crypto markets are eagerly waiting for the U.S. Bureau of Labor Statistics to release of the annual CPI readings for May so as to assess the extent of price pressures still persisting in the economy.
The CPI had increased 8.3 percent in the 12 months ending April, versus the 8.5 percent increase for the period ending in March. The core inflation (all items less food and energy index) had risen 6.2 percent over the last 12 months. The energy index had increased 30.3 percent whereas the food index had increased 9.4 percent, the largest 12-month increase since the period ending April 1981.
Markets are expecting the inflation number to be steady at 8.3 percent and the core inflation to fall to 5.9 percent.
In response to the sticky inflation, the Federal Reserve had hiked the target funds rate by 25 basis points in March and 50 basis points in May. Since then, the Fed had been reiterating an aggressive stance that would be reversed only with signs of inflation being tamed.
Anxiety is writ large and crypto markets have dropped by more than one percent in the past 24 hours. The onset of a tight monetary policy regime had a telling effect on crypto market sentiment, dragging down market cap from $2.2 trillion at the end of 2021 to $1.23 trillion currently.
Markets are anxious to know whether the inflationary trends have softened, justifying a moderation in the Fed’s aggressive stance. The hardening of interest rates increases the opportunity cost of holding non-interest yielding crypto and also impacts digital asset valuations.
Bitcoin is trading at $30,014.66, down 1.02 percent on an overnight basis. Ethereum is trading at $1,773.03, losing 1.83 percent in the past 24 hours. 5th ranked BNB has declined 0.44 percent. 6th ranked Cardano has shed more than 4 percent. 7th ranked XRP has edged down to $0.4012.
Gold is trading almost 1 percent lower at $1,835. The Dollar Index has in the meanwhile strengthened t0.38 percent overnight to 103.61.
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