Will the US CPI on July 14 determine Bitcoin's path to $70,000?

▲ Bitcoin (BTC) ©Dasol Ko

As Bitcoin (BTC) recorded its strongest weekly gain since March, market expectations for slowing US inflation are emerging as a key variable for further price increases. However, some caution that the market is excessively reflecting expectations for interest rate cuts due to the stickiness of service prices.

According to investment media FXStreet on July 6 (local time), Bitcoin rose by about 7% in the week leading up to July 5, marking its best weekly performance since March. The media attributed the recent rally to the rapid decline in Breakeven Inflation indicators, which reflect market inflation expectations.

In particular, the US 2-year breakeven inflation rate has fallen below the Federal Reserve's (Fed) target of 2%, and long-term breakeven inflation has also significantly declined in recent weeks. Furthermore, the price of West Texas Intermediate (WTI) crude oil, which influences inflation, has also dropped to levels seen in late February before the start of the Iran war. This has led to analyses in the market suggesting that inflation concerns, the possibility of interest rate hikes, and the outlook for a strong dollar are weakening.

Robin Brooks, a senior fellow at the Brookings Institution and former chief economist at the Institute of International Finance (IIF), predicted, "The US June Consumer Price Index (CPI), to be announced on July 14, is likely to confirm deflationary pressures due to falling oil prices," adding, "The Fed will consider interest rate cuts as its next move rather than raising rates." The media explained that if the dollar's strength weakens, the burden of further increases for Bitcoin, which has generally shown an inverse correlation, could also decrease.

On the other hand, caution against market optimism continued. YCC Macro pointed out that the Fed cannot declare victory in its fight against inflation based solely on falling oil prices. It analyzed that the rise in service prices remains a structural problem, and core inflation could persist longer than expected, leading the market to underestimate the Fed's potential to keep interest rates higher for longer.

Ultimately, the sustainability of the current Bitcoin rebound depends on whether the US June Consumer Price Index (CPI), to be released on July 14, can confirm expectations of slowing inflation. The media stated that if market expectations for inflation and monetary policy diverge from actual economic indicators, both the dollar and Bitcoin could experience increased volatility.

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