Bitcoin Market Awaits U.S. CPI Report Amid Supply Overhang Clearance

The upcoming release of the U.S. consumer price index (CPI) report on Thursday is expected to have a significant impact on the bitcoin market, especially as the supply overhang from Germany’s Saxony state has nearly cleared. The data, which is due at 12:30 UTC, is anticipated to show a 0.1% month-over-month increase in the cost of living in June, with a 3.1% rise year-over-year.

Economists surveyed by Dow Jones predict that the core CPI, which excludes volatile food and energy prices, will have increased by 0.2% from May and 3.4% since June last year. If the actual figures align with these estimates, it would signal progress towards the Federal Reserve’s 2% inflation target and potentially pave the way for a rate cut cycle later this year.

The prospect of rate cuts is likely to benefit risk assets, including bitcoin, which has been struggling to establish a foothold above the $59,000 mark. Analysts believe that lower rates could drive investors towards longer-tail assets like cryptocurrencies, potentially boosting their prices.

The inflation rate in the U.S. has slowed significantly from its peak in 2022, but the Fed has emphasized the need for further progress on the inflation front before considering rate cuts. Fed chief Jerome Powell recently reiterated this stance, stating that the central bank won’t wait for inflation to cool to 2% before taking action.

Traders have already priced in a 70% chance of a Fed rate cut in September, with expectations of another cut in December. The response of the U.S. Treasury yield curve to the CPI release could influence market sentiment, including the price of bitcoin.

A potential bull steepening of the yield curve, characterized by a spread between yields on the 10- and two-year notes, could indicate economic contraction and risk aversion. Historically, periods of bull steepening have preceded recessions, leading to underperformance in equities.

Investment banks like JPMorgan and Citi are betting on the steepening of the yield curve, suggesting that market participants are closely watching the CPI report for clues on the future trajectory of both traditional and digital assets.