U.S. PPI inflation unexpectedly declined 0.1% in August, creating a major shift in the narrative for risk assets.
Summary
- Bitcoin price rose above $114,000 for the first time in weeks on bullish macro signals
- A sudden drop in inflation increases the odds of a Fed 50bp rate cut
- Investors are jumping back into Bitcoin ETFs on rate cut hopes
Changing macroeconomic conditions are fueling bullish momentum for Bitcoin. On September 11, Bitcoin bounced back from a weekly low of $110,000 and reached a daily high of $114,471.65, which was also its highest level so far this month.
Just a day prior, on September 10, Bitcoin ETFs saw $757 million in net inflows, erasing last month’s net outflows. This shows that investors are once again confident enough to buy the dip after a lukewarm summer.
The shift is most likely due to a change in macroeconomic outlook. Notably, on September 10, the Bureau of Labor Statistics reported an unexpected drop in the producer price index, a measure of input prices for the U.S. industry. The key metric, which has a significant impact on the price of domestic goods, fell 0.1%, while investors expected a 0.3% rise.
Still, the real test is due later on September 11, when the consumer inflation data is released. This is the Federal Reserve’s preferred method of gauging inflation, which the central bank has a mandate to keep in check.
Bitcoin rises as investors bet on Fed rate cuts
Still, despite the impending release of the CPI data, investors are convinced that a rate cut will come, fueling bullish Bitcoin (BTC) bets. Currently, interest rate traders are pricing in a 100% chance of a cut, due to weak labor data and slow inflation figures.
In this context, the question remains whether the Fed will cut interest rates by a modest 25 basis points or by more. Currently, Polymarket traders place the odds of a 25 bps cut at 78%, while those of a 50 bps cut are at 20%.
