Key Takeaways:
- Fresh CPI report for August shows hotter inflation than July.
- Bond yields and the dollar index give a choppy hourly performance.
- The crypto market lost $5 billion after the news.
YEREVAN (CoinChapter.com) — The latest Consumer Price Index (CPI) report from the Bureau of Labor Statistics pinned the August headline inflation at 3.7% year-over-year (YoY), a pickup from the 3.2% increase in July.
Rising energy prices largely fueled the uptick. However, prices rose 0.3%, even when stripping out the volatile food and energy categories. Notably, the increase constitutes a hotter pace for so-called core inflation than the prior two months.
Bond Yields and the dollar index jitter on the news
Markets reacted to the report results immediately, with the US bond yields initially inching lower, then partially recovering.
The more policy-sensitive 2-year US Treasury note yielded higher than 5% after considerable turbulence. It inched up right after the CPI report, then settled back within about 10 minutes and established another leg up to 5%.
Similarly, after an equally unstable hour, the CPI report release pushed the benchmark 10-year Treasury bond yield to 4.28%.
The dollar index (DXY) also recovered from its initial jitter. The low time-frame chart below shows a drop to 104.5 after the CPI report release, then a bounce back to 104.7 an hour later.
Given the reversal of the inflation cool-off in the previous months, the markets are wary of more hawkish policies from the Federal Reserve at the Sep 19-20 meeting.
Nigel Green of deVere Group saw an unlikely September interest rate increase, given that the steady interest rates have already been “priced-in by financial markets.” However, he underscored the likelihood of another interest rate hike in November.
The uptick in inflation gives the US central bank extra reason to be hawkish moving forward. As such, we also expect the Fed will start to prepare the market for a rate increase at its November meeting.
he told CoinChapter.
More pain ahead for crypto?
Meanwhile, the possible continuation of quantitative tightening policies could push Bitcoin and the rest of the crypto sector into a ditch.
In short, the raised interest rates slow down the economy to cap the growing inflation. In doing so, the Fed creates a liquidity crunch across the markets. Less cash in investors’ pockets equals less desire and opportunity to park it in the crypto sector.
Moreover, during the Jackson Hole speech on Aug. 25, Fed Chair Jerome Powell asserted that the possibility of another interest rate hike remains on the table, which means reduced-risk policy for institutional and retail investors alike.
The latest CPI report confirmed the fears. The crypto market shaved $5 billion off its total valuation within hours, settling around $1.018 trillion at 14:00 GMT.
Next week, the Federal Open Market Committee (FOMC) meeting will shed more light on the Fed’s policies and, by extension, market expectations.
Update: As of 17:00 GMT, the crypto market pared the valuation loss, bringing the total market cap up to $1.025 trillion, while the US Treasury yields and the dollar index printed more losses.
