US CPI Data Brings No Surprises

Bitcoin barely reacted when the data dropped, as traders were expecting the slight fall with a high degree of confidence.

What impact with CPI have on interest rates?

CPI data for November has been published, coming in bang on expectations.

CPI was forecast to rise 3.1% YoY in November (0.1% MoM), down from 3.2% in October. Annual Core CPI inflation was expected to remain at 4% (0.3% MoM, from 0.2% in October).

Softening inflation has partly been driven by falling energy prices, with oil noticeably cooling in recent weeks, dropping as much as $25 from its September peak.

FOMC Meets Tomorrow

CPI figures are critical because inflation figures and trends inform the Federal Reserve's decisions on interest rates. This, among other things, affects the cost of accessing loans, and impacts risk assets like stocks and crypto.

Before CPI data was released, traders were pricing in a 98% chance of a hold on interest rates, with almost no chance of an increase in January (1.6%) and a growing probability of cuts as 2024 progresses.

Following the update, traders barely altered their expectations, with the CME's FedWatch Tool showing a change to a 1.7% expectation for 550-575 bps tomorrow.

Markets React

Bitcoin has had a turbulent week, dropping from its peak near $45,000 last week to just above $40,000 on Tuesday, before bouncing back towards the critical $42,000 line.

New CPI data almost always prompts volatility in the crypto markets, with sharp moves in both directions as traders make knee-jerk reactions, then digest the information more carefully. In this instance, the immediate response was muted as bitcoin climbed slightly higher, towards $42,000. As usual, it may take a while for the implications to be priced in.

Risk assets have recently been making all-time highs, despite interest rates remaining above 5%. The Dow Jones, S&P500, and NASDAQ are all at or near their ATHs. Gold pushed above $2,100 last week, before dropping back.

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