Bitcoin prices showed a modest drop on Thursday after the release of fresh US inflation data, with the market parsing cues on the Federal Reserve policy path.
Bitcoin, which often responds to CPI data due to its impact on interest rates and dollars, fell temporarily to $113,823 following the report.
Annual inflation hits 2.9% in August, US CPI data shows
According to the U.S. Labor Bureau, the Consumer Price Index (CPI) rose 2.9% year-on-year in August, rising in line with forecasts of 2.9%. This follows a July CPI read of 2.7%.
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The consumer price index measures retail inflation and is closely monitored as an important economic indicator.
Meanwhile, the producer price index (PPI), which tracks wholesale inflation, fell unexpectedly in August due to lower margins in trade services and a moderate increase in commodity costs. This figure was weaker than expected at 2.6% year-on-year, and was well below the 3.3% forecast. Softer PPI printing has strengthened expectations for reinforcement against Fed rate reductions, increasing risk sentiment across stocks and crypto markets.
“As labor market figures have recently been revised downwardly and signs of slowing down, this inflation report is the final important data before the Federal Reserve meeting in September, and will significantly affect the pace of future rate cuts.”
The Fed is widely expected to cut interest rates at 25 basis points at its meeting next Wednesday. Investors are also priced a small possibility of 50 base points reductions, according to the CME FedWatch tool.
On the Crypto side, Bitunix analysts noted that Bitcoin faces heavy liquidation pressures of nearly $114,000, forming a main zone of resistance.
“If CPI data is interrupted and BTC exceeds this level, it could cause short throttles and accelerate movement into over 115,000 liquidity zones,” they said. “On the other hand, if stronger than expected inflation increases the US Dollar Index (DXY) and delays forecasts for rate cuts, $111,000 will be the first important support and potential retest of the liquidity zone of $108,500-$109,000 if it breaks.”
They recommended that traders reduce their positions before CPI data was released. The PPI fell unexpectedly, but the CPI was able to raise prices. Traders should pay attention to Bitcoin resistance and support at $114,000 and $111,000 to navigate possible market fluctuations.
Inflation data adds another layer of complexity to Bitcoin’s short-term outlook. Higher than expected CPI printing typically puts pressure on risky assets like BTC. This will make monetary policy even more stringent and increase the likelihood of strengthening the US dollar.
Conversely, softer inflation could support the crypto market by increasing the likelihood of fee cuts next week.
