Will Bitcoin Surge Following Tomorrow's U.S. CPI Data Release?

Will Bitcoin Surge Following Tomorrow's U.S. CPI Data Release?

Summary:
Bitcoin's price experienced a minor uptick on Wednesday as it managed to stay above the $85k support level. With the upcoming U.S. CPI data release, investors are left wondering if Bitcoin will see further gains. Recent labor market data has indicated strength, yet the rising unemployment rate raises concerns about future Federal Reserve actions, which could impact Bitcoin's trajectory.

Key Takeaways:

Bitcoin rebounded from a low of $85,427 to nearly $88,000 but settled at $87,305.
The U.S. jobs report showed stronger-than-expected payroll growth, yet an increase in the unemployment rate could lead to rate cuts by the Federal Reserve.
Upcoming U.S. CPI data is crucial, with predictions suggesting a rise in inflation rates that could affect future Fed decisions.
A possible interest rate hike by the Bank of Japan could also impact the broader market, including Bitcoin.

Recent Bitcoin Price Movements

On Wednesday, Bitcoin's price saw a modest rebound, recovering from an intraday low of $85,427 on December 16 to reach an intraday high of $87,918 during morning hours in Asia. As of now, the price has retreated slightly, stabilizing around $87,305.

This increase follows the release of U.S. jobs data, which exceeded expectations. The nonfarm payroll for November rose by 64,000, significantly higher than the forecasted increase of 45,000. However, the unemployment rate also increased to 4.6%, marking the highest level since September 2021.

The Federal Reserve's Perspective

The strong labor market might provide the Federal Reserve with some flexibility concerning inflation management, but analysts are cautious about the rising unemployment rate. This could prompt the Fed to consider additional rate cuts, particularly as it aims to support job growth to achieve maximum employment. Typically, expectations of Fed rate cuts create a bullish environment for Bitcoin and other major cryptocurrencies.

Furthermore, Bitcoin has benefited from a potential short squeeze, with many traders who held short positions being caught off guard by the price surge. According to data from CoinGlass, approximately $38 million in short positions were liquidated within the last 24 hours, in contrast to $23.5 million from long positions.

Upcoming U.S. CPI Report

Investors are keenly awaiting the U.S. Consumer Price Index (CPI) data set to be released tomorrow, December 18, at 8:30 AM ET. Economists predict that the headline CPI will rise to between 3.0% and 3.1% compared to the previous year, with Core CPI expected to range from 2.9% to 3.1%.

A higher-than-expected CPI print could lead the Federal Reserve to delay rate cuts in January, potentially exerting downward pressure on Bitcoin's price.

Implications of the Bank of Japan's Decision

In addition to the upcoming CPI data, the Bank of Japan (BoJ) is set to announce its interest rate decision on Friday. Current market forecasts suggest a 98% probability of a 25 basis point hike on December 19, which would bring the benchmark rate to 0.25% for the first time in over 11 months.

If the BoJ raises rates while the Federal Reserve is cutting them, this could significantly alter the interest rate landscape between the two nations, possibly causing a major unwinding of the yen carry trade. Since Japanese institutional investors are the largest holders of U.S. Treasury bonds, rate increases in Japan might lead to a significant influx of capital back to Japan as they divest from U.S. holdings for better domestic yields.

Historically, Bitcoin and many altcoins have faced considerable drops each time the BoJ has raised interest rates.

Market Analyst Insights

David Hernandez, a crypto investment specialist at 21Shares, commented on the situation, stating, “The unexpected strength in the November jobs report presents a short-term headwind for Bitcoin. However, the accompanying rise in the unemployment rate creates a mixed signal.” He added, “Ultimately, the strong payroll figure momentarily cools the rally by delaying the pivot to monetary easing. While heightened volatility is anticipated, the long-term narrative for Bitcoin remains intact. This jobs beat is a temporary tactical challenge, not a strategic threat.”