A soft U.S. inflation report, scheduled for release later today, is expected to provide a boost to risk assets, including bitcoin (BTC). However, those hoping for a substantial rally may be disappointed.
The U.S. Labor Department will unveil January’s consumer price index (CPI) at 13:30 UTC. The consensus estimate is for a 0.3% month-over-month increase in the cost of living, a slight deceleration from December’s 0.4% gain, according to Reuters and FXStreet. The annual CPI figure is predicted to remain steady at 2.9%, the same as December.
The core inflation, excluding food and energy, is forecast to have risen 0.3% month-over-month, up from December’s 0.2%, leading to an annualized rate of 3.1%, a small decrease from 3.2% in December.
A lower-than-expected CPI, especially the core figure, could strengthen expectations for further interest rate cuts from the Federal Reserve (Fed). This could result in lower Treasury yields and a weaker U.S. dollar, making risk assets like bitcoin more attractive. According to CME’s FedWatch tool, there’s currently a 54% chance that the Fed will either cut rates once or leave them unchanged this year.
While a rate cut could help BTC, it’s unlikely to catalyze a major breakout above the current $90,000 to $110,000 range.
Market indicators point to rising inflation concerns in the coming months, particularly due to potential trade tensions, which could limit the Fed’s scope for aggressive rate cuts. Mott Capital Management’s data shows two-year inflation swaps climbing to nearly 2.8%, the highest since early 2023, with the five-year swap reflecting a similar upward trend. These increased inflation expectations suggest that inflationary pressures may persist, possibly delaying the Fed’s goal of achieving 2% inflation.
Additionally, some analysts, including those at major investment banks, believe a soft January CPI report won’t sway the Fed from its current hawkish stance. Fed Chairman Jerome Powell signaled in his Congressional testimony on Tuesday that there is no immediate rush to cut rates.
RBC’s weekly note highlights that inflation progress isn’t expected to prompt any immediate rate cuts, while BlackRock emphasized that persistent inflation in services will keep the Fed focused on maintaining higher rates for a longer period.
If the CPI report comes in higher than anticipated, BTC might edge closer to the lower end of its $90K-$110K trading range.
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