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The bitcoin price rebounded from its December lows as traders bet the U.S. Federal Reserve could be about to declare victory in its war against soaring inflation, helping the ethereum price and other major cryptocurrencies to rally—with some predicting smaller coins could be heading sharply higher.
Now, bitcoin, ethereum and crypto markets are braced for next week’s U.S. inflation data, with concerns growing it could be higher than markets are forecasting, potentially triggering a fresh bout of volatility after 2023 was declared the “year of opportunity.”
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“The Fed is on its toes, waiting for any other data shocks before it can judge that it’s getting the upper hand in its inflation fight,” Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said in emailed comments, adding Fed chair Jerome Powell this week indicated “the process of lowering the price spiral was only just getting started, and could last at least into next year.”
The latest U.S. consumer price index (CPI) report is out on Tuesday, February 14, with the market pricing in a CPI increase of 0.4%, according to a Reuters poll.
This past week, the University of Michigan survey’s inflation outlook, a measure Powell has previously indicated the Fed tracks, returned the highest reading since January 2022, suggesting households expect higher inflation to persist over the coming year.
As a result, the looming CPI report has been “put in the crosshairs,” Mazen Issa, senior FX strategist at TD Securities, told Reuters. A hotter-than-expected inflation report could mean the Fed opts for a larger rate hike next month in an attempt to further suck liquidity from the system.
The Fed has slowed the pace of its interest rate hikes in recent months after ramping up rates in response to inflation rocketing to a 40-year high last year.
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Earlier this week, Powell, speaking just days after markets were rocked by the latest “extraordinarily strong” U.S. jobs report, said it would probably take a “significant period of time” to fully stamp out inflation due.
Traders were still inclined to interpret his comments as dovish, however, due to his declaration the “disinflationary process” has now “begun.”