Markets
Things to Watch Out for as BTC Nurses Losses
Wednesday could be a decisive day for markets as the important US consumer price index report will be released just hours before the Federal Reserve meeting.
The Labor Department’s CPI, due at 12:30 UTC, is expected to show that the cost of living rose 0.1% in May, following April’s 0.3% increase, according to FactSet. This would keep the annual inflation rate stable at 3.4%. Meanwhile, the core value, excluding volatile food and energy metrics, is forecast to rise 0.3% in May, keeping pace with April.
Later at 18:00 UTC, the Fed is expected to keep the benchmark borrowing cost unchanged between 5.25% and 5.5% and publish the interest rate dot plot. Inflation data is expected to influence the dot plot projections and Powell’s post-meeting statement.
Here are some important points to note that could influence the dollar index and bitcoin.
According to investment banks, the risk to the core CPI is negative.
“Base price growth (excluding food and energy) is also expected to fall to 3.5% (from 3.6% in April), on a more normal 0.2% month-on-month increase. Rent price growth of homes should also slow along with a smaller month-over-month increase in the ex-rent measure of basic services that Fed policymakers have been watching closely,” RBC economists wrote in a preview.
According to ING, some economists predict that homeowner income equivalent – the intangible component with a 40% weight in the main CPI basket – will eventually decline.
The potential easing of pressures on shelter prices, one of the sources of sticky inflation in recent months, could raise hopes of a Fed rate cut, sending the dollar lower. A weaker dollar often accompanies a rally in risk assets, including bitcoin.
Bitcoin has been under pressure since Friday, losing more than 5% to trade near $67,350, according to data from CoinDesk. The dollar index, which measures the value of the dollar against major currencies, rose 1% to 105.20.
A status quo decision on rates is probably a foregone conclusion, as is the rate protection chart, which is expected to show two rate cuts this year instead of three. Since Friday’s hotter-than-expected payrolls data, markets have priced in the odds of more than two rate cuts this year.
As such, the focus will be on the central bank’s view on the path of inflation.
“If the Fed removes the phrase ‘in recent months, there has been a lack of further progress toward the Committee’s 2 percent inflation objective’ from its short-term statement, [Treasury] yields and the dollar could fall,” ING said in a note sent to clients on Wednesday morning.
“Chair Powell typically holds a peaceful press conference and the dollar has finished lower on the day at the last four consecutive FOMC meetings,” ING said. “we would have to see some 0.4% shock to the headline CPI MoM number or a more aggressive Powell to get the DXY anywhere near the 105.90/106.00 area. We see this as unlikely.”
This year, bitcoin has consistently seen price declines leading up to the Fed’s decision, only to resume an uptrend following the event.