Saltık 
Bitcoin has come under pressure ahead of major events that could affect the Fed’s interest rate cut expectations.
The dollar index and bitcoin depend on core inflation, housing rents and the Fed’s views on the inflation path. Investment banks expect a decrease in housing rents. A higher-than-expected CPI could shake risk assets. Wednesday could be a decisive day in the markets as the critical US consumer price index report is due to be released just hours before the Federal Reserve meets.
The Labor Department’s CPI report will be released at 12:30 UTC and is expected to show the cost of living will rise 0.1% in May, following a 0.3% increase in April, according to FactSet. This would keep the annual inflation rate steady at 3.4%. At the same time, core inflation excluding volatile food and energy items is expected to increase by 0.3% in May, the same rate as in April.
Then, at 18:00 UTC, the Fed is expected to keep its benchmark borrowing cost steady between 5.25% and 5.5% and release its interest rate dot chart. Inflation data is expected to influence dot chart projections and Powell’s post-meeting remarks.
Here are the important factors that may affect the dollar index and bitcoin:
Core Inflation and Rental Price Increase
According to investment banks, the core CPI risk is stated to be on the downside. “Core price growth, excluding food and energy, is expected to slow to 3.5% (from 3.6% in April), with a more normal 0.2% monthly increase. Residential rent price growth is also expected to be lower than the core services non-rent measure that Fed policymakers watch closely.” with the monthly increase expected to slow,” RBC economists say.
According to ING, some economists predict that Owners’ Equivalent Rent, which has a 40% weight in the core CPI basket, will finally fall. A possible easing in housing price pressures, one of the sources of stickiness in inflation in recent months, could revive expectations for a Fed interest rate cut, which could in turn lower the dollar. A weaker dollar often comes with a rally in risk assets like bitcoin.
According to JPMorgan, the dollar will likely rise if monthly core CPI exceeds 0.4%.
Bitcoin has remained under pressure since Friday, losing more than 5% to around $67,350, according to CoinDesk data. The dollar index, an indicator that measures the value of the greenback against major currencies, increased by 1% to 105.20.
Fed Statement
A rate decision to remain as it stands is the most likely outcome, with the interest rate projection chart expected to show two rate cuts this year instead of three. Since Friday’s warmer-than-expected employment data, markets have ruled out more than two rate cuts this year.
Therefore, the focus will be on the central bank’s view on the course of inflation. “If the Fed omits from its statement the sentence ‘In recent months, there has been no further progress toward the Committee’s 2% inflation target,’ short-term U.S. [Treasury] yields and the dollar could decline,” ING said in a note to clients Wednesday morning.
“Chairman Powell usually holds a dovish press conference, and the dollar has closed lower on the day of the last four FOMC meetings,” ING reports. “We would need to see a shock of 0.4% monthly core CPI figure or a more hawkish Powell that would bring DXY to 105.90/106.00 levels. We think this is unlikely.”
This year, while bitcoin generally experienced price declines before the Fed decision, it rose again after the decision.
You can also freely share your thoughts and comments about the topic in the comment section. Additionally, don’t forget to follow us on our Telegram, YouTube, and Twitter channels for the latest news and updates.