Crypto Markets Rally as U.S. CPI Posts Its Biggest Drop Since 2020, Quelling Rate Hike Concerns

The crypto market got a major boost on Tuesday after economic data showed inflation in the United States is cooling faster than expected.

Investors welcomed the update as Bitcoin and other assets rose. The crypto market rose 1.84% over the past 24 hours, pushing the total market cap to around $2.2 trillion. The rally came after new inflation data showed that price pressures may finally be easing. This raised hopes that the Federal Reserve could take a softer approach to monetary policy in the coming months.

U.S. inflation data comes in below expectations

The new report from the U.S. Bureau of Labor Statistics showed that consumer prices fell more than economists had expected in June. CPI dropped 0.4% on a monthly basis, which was the biggest monthly drop since April 2020. Economists had expected it to fall to 0.2%.

On a yearly basis, U.S. Inflation fell to 3.5%, down from 4.2% in May and below market expectations of 3.8%.

Source: U.S. Bureau of Labor Statistics

The report also showed encouraging signs for the economy. Core CPI, which excludes food and energy prices, came in at 2.6% YoY and was flat on a monthly basis. Analysts had expected readings of 2.9% annually and 0.2% monthly.

Additionally, the energy index dropped 5.7% during June. Gasoline and fuel oil prices both fell by more than 9% during the month. These figures suggest that U.S. Inflation may be cooling again after months of uncertainty.

Bitcoin jumps as Fed rate cut hopes grow

BTC price climbed back above $63,000 shortly after the inflation report was released. The coin rose from an intraday low of $62,000 to trade around $63,800, gaining 2%.

This was driven mostly by the expectations of a possible Fed rate cut this year. Before the inflation report, many were worried that persistent inflation could cause policymakers to hike rates. Fed Governor Chris Waller had suggested that he may support a tighter policy if inflation continues.

According to CME FedWatch data, the probability of a rate hike at the July FOMC meeting has fallen to just 14.4%.

Source: CME FedWatch

Prediction markets are also showing a shift in sentiment. Data from Polymarket now shows a 53% chance of a rate hike later this year, down from a high of 71%.

Source: Polymarket

Markets are now watching Kevin Warsh's congressional testimony for clues about future policy decisions. Upcoming Producer Price Index (PPI) data could also influence expectations.

Meanwhile, the geopolitical tensions are still a concern. The conflict involving the U.S. and Iran has continued to create an imbalance in energy markets. 

President Donald Trump’s proposal for a 20% cargo fee on ships using the Strait of Hormuz has also raised concerns about future oil supply disruptions. Events like this could still influence U.S. Inflation readings if energy prices begin rising again.