US PCE inflation is anticipated to exceed expectations, according to U.S. economists. This potential increase may prompt the Federal Open Market Committee (FOMC) to reconsider initiating Fed rate cuts in September. If PCE inflation rises more than expected, it could create additional selling pressure on Bitcoin and Ethereum prices. Investors are closely monitoring this key inflation indicator, as a higher PCE reading may signal a need for the Fed to maintain or even increase interest rates rather than cut them. Such a decision could negatively impact risk assets, including cryptocurrencies, leading to further price declines. Consequently, market participants are bracing for potential volatility in the crypto space as the September meeting approaches. The implications of rising PCE inflation are significant, and the reactions of both the FOMC and investors will likely shape market dynamics in the coming weeks.
Economists Estimate PCE Inflation at 2.6%, Core PCE at 2.7%
The U.S. Bureau of Economic Analysis is set to release US PCE inflation data for July on Friday, August 30. Economists anticipate the annual PCE inflation rate to come in at 2.6%, slightly above the previous month’s 2.5%. Additionally, the monthly US PCE inflation is expected to rise by 0.2%, compared to the 0.1% increase recorded in the prior month. These projections suggest a gradual uptick in inflationary pressures.
Furthermore, the annual core PCE, which excludes the often-volatile food and energy prices, is projected to increase by 0.18% on a monthly basis and 2.7% on an annual basis. While these estimates indicate a slight increase from June’s PCE inflation figures, many in the markets still expect inflation trends to continue downward.
“We’re going to see continued progress on inflation,” says José Torres, a senior economist at Interactive Brokers, as reported by Morningstar. Torres attributes this optimistic outlook to declining prices for various goods, along with reductions in crude oil and gasoline prices. However, despite this optimism, prices for crude oil, natural gas, and gold have been rising today, which is making traders more cautious about the potential impact of US PCE inflation.
If US PCE inflation comes in higher than expected, it could lead to significant repercussions in the financial markets, particularly for cryptocurrencies like Bitcoin and Ethereum. Analysts believe that elevated US PCE inflation could trigger further selling pressure on these digital assets, potentially leading to broader liquidations across the crypto market. This is especially pertinent given that cryptocurrencies often react sensitively to macroeconomic indicators and inflation trends.
In the wake of higher inflation data, risk assets such as Bitcoin and Ethereum may face intensified scrutiny from investors. A strong showing in the US PCE inflation figures might result in heightened concerns over the Federal Reserve’s interest rate policies. If the Fed signals a need to maintain or increase interest rates due to rising inflation, the impact on the crypto market could be significant.
Overall, the upcoming US PCE inflation data is pivotal for market participants, and its implications will resonate across various asset classes. As traders await the report, the specter of higher inflation continues to loom large, influencing market sentiment and trading strategies. The potential for increased volatility in cryptocurrencies remains high, especially if US PCE inflation exceeds expectations.
Will Fed Start Rate Cuts in September?
The European Central Bank (ECB) is considering another rate cut on September 12, which will provide traders with further cues before the Fed plans rate cuts on September 18. ECB policymakers have indicated the rate cut is likely, while eyes are on inflation figures for France, Italy, and the broader Eurozone release this Friday.
The Fed expects three rate cuts this year, with a potential start in September as per the latest signal by Fed Chair Jerome Powell. However, the Fed could delay rate cuts to November if PCE inflation and jobs data come in higher.
Meanwhile, the stock and crypto market has turned volatile as traders track Nvidia earnings and PCE inflation. Nvidia shares tumbled about 7% in extended trading even after beating revenue and earnings expectations, as the firm’s sales outlook for the current quarter failed to impress investors.
CME FedWatch data shows a 65.5% probability of 25 bps rate cuts in September. Also, it still shows a total of 100 bps rate cuts this year.
The Buffett Indicator (Total US Market Value/GDP) is a ballpark measure of how expensive stocks are at any one point in history…
It’s now sitting at ~200%.
“If the ratio approaches 200%, as it did in 1999, you are playing with fire.” – W. Buffett
Bitcoin and Ethereum Price Under Pressure
BTC price jumped 2% from the 24-hour low of 58,637, with the price currently trading at $60,142. This happened after a breakout in the lower time frame. The trading volume has decreased by 23% in the last 24 hours, indicating a decline in interest among traders.
CryptoQuant metric NVT Golden Cross for Bitcoin is struggling to surpass its previous peak. This indicates that the current uptrend is losing momentum. The NVT Golden Cross needs to surpass the previous peak with support from bulls to regain the upside momentum.
Moreover, Bitcoin options worth $3.65 billion and Ethereum options worth $1.35 billion are set to expire on the largest derivatives exchange Deribit. This could further bring long liquidations in BTC and ETH, triggering a market correction amid the US PCE inflation data.
Meanwhile, ETH price also jumped 2% from the 24-hour in the past 24 hours, with the price currently trading at $2,570. Ethereum also saw a breakout in 1-hr timeframe. The trading volume has decreased by 25% in the last 24 hours.
In the daily timeframe, Ethereum price is facing strong resistance currently. RSI is near the neutral area at 41. The fib replacement indicates the price is bouncing off the 0.236 level at $2,450. The price may drop again to the level during the ETH options expiry as max pain point is higher at $2,800, as per Deribit data.
