The cryptocurrency market responded positively to the Consumer Price Index (CPI) report released on Wednesday and the prospects of easing in the US-China trade war. In such cases, the demand for alternative hedging tools typically weakens; however, Bitcoin's price is nearing $109,000, while Ethereum (ETH) recorded a 3% increase, trading above $2,800.
Although it is too early to claim this as a trend, the cryptocurrency market seems to be showing slight differentiation from traditional assets. The S&P 500 index has given back some of its earlier gains, which initially stemmed from President Trump’s announcement of a new trade agreement with China.
According to the agreement, both parties will reduce tariffs to levels seen in February 2025, easing tensions and eliminating retaliatory taxes. However, the stock market's performance indicates that investors are reacting tepidly, despite the significant reduction in recession risks.
The 2.4% annual inflation rate reported in the US Consumer Price Index provides some breathing room, especially against the backdrop of rising price concerns driven by the ongoing global trade war. Typically, such developments would bolster stock market confidence and lift the dollar, but investors remain uneasy about the US government's escalating debt.
The Dollar Index (DXY) has fallen to a seven-week low, indicating that investors are moving away from the dollar. This decline often reflects a decrease in market confidence regarding the Federal Reserve's ability to manage economic risks and heightened concerns about the national fiscal trajectory. In response, market participants are turning to allocate other major fiat currencies.
Reports indicate that JPMorgan CEO Jamie Dimon emphasized the risks in the private credit sector on Tuesday, noting that this area could face issues during economic downturns. According to CNBC, Dimon believes the US still faces recession risks, particularly as employment "will likely decline slightly" and inflationary pressures persist.
RSM Chief Economist Joe Brusuelas stated in an interview with Yahoo Finance, "We really haven't seen much transmission of tariff impacts, and even if there are, they are quite limited." In short, the lack of robust economic growth remains the primary concern for investors. The longer the Federal Reserve maintains current interest rates, the greater the likelihood of an economic recession.
According to the CME FedWatch tool, the probability of the year-end federal funds target rate based on futures has shifted significantly over the past month. The market now anticipates a 73% probability of rates reaching 3.75% or higher by December, compared to just 42.5% a month ago.
Higher interest rates have a dual negative impact on the economy; they not only increase the cost of issuing and refinancing debt for individuals, businesses, or governments, but also rates exceeding expected inflation tend to pressure risk assets, as fixed-income products become more attractive.
Signs of initial decoupling from the stock market indicate that investors are seeking higher returns, especially in light of signs that the US government is preparing to raise the debt ceiling. Therefore, regardless of the economic growth outlook, cryptocurrencies are seen as benefiting from this environment, as traders anticipate that central banks will increase liquidity supply.
Related: Analysts say: Peter Brandt's predicted 75% crash for Bitcoin (BTC) is "extremely unlikely."
This article is for general reference only and should not be considered legal or investment advice, nor should it be viewed as such. The views, thoughts, and opinions expressed herein are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Original article: “Bitcoin (BTC) and Ethereum (ETH) Prices Consolidate After Inflation Cools and US-China Tariffs Rollback”
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