Important takeouts:
The cryptocurrency market has responded aggressively to today’s Consumer Price Index (CPI) report, reducing the prospect of a growing trade war between the US and China. Demand for alternative hedging equipment usually weakens in such a scenario, while Bitcoin (BTC) approached $109,000, while Ether (ETH) recorded a profit of 3% and was traded above $2,800.
It’s too early to call it a trend, but the crypto market seemed to diverge slightly from traditional assets. The S&P 500 Index has returned some of its previous profits. This was initially driven by US President Donald Trump’s announcement of a new trade agreement with China.
According to the transaction, the two countries will repeatedly reinforce tariffs to levels seen in February 2025, alleviating tensions and removing retaliation taxes. However, stock market performance suggests that investors are overwhelmed despite a significant reduction in the risk of economic fallout.
Bitcoin, ether benefits from potential liquidity injections
Annual inflation rate of 2.4% reported by the US Consumer Price Index provided some degree of mitigation, particularly in the context of concerns about rising prices driven by the ongoing global trade war. Typically, these developments increase confidence in stocks and strengthen the US dollar, but investors still feel uneasy about the rise in US government debt.
The US Dollar Index (DXY) fell to its lowest point in seven weeks, indicating that investors are retreating from the dollar. This decline usually indicates a decline in confidence in the Federal Reserve’s ability to manage economic risks and heighten concerns about the country’s fiscal trajectory. In response, market participants are reassigning to other major Fiat currencies.
On Tuesday, JPMorgan Chase CEO Jamie Dimon reportedly highlighted the risks posed by private credit, which could lead to problems during an economic recession. According to CNBC, Dimon believes the US remains vulnerable to the recession, particularly as employment is “a little drop.”
“We didn’t go through much of the pass from the tariffs,” Joe Brusuela, chief economist at RSM, told Yahoo Finance. In short, the lack of robust economic growth is a major concern for investors. The longer the US Federal Reserve maintains current interest rates, the more likely it is to see a rise in recession.
According to the CME FedWatch tool, futures-based odds for Fed funds at the end of the year have shifted particularly over the past month. Currently, the market means there is a 73% chance that a fee of 3.75% or more will be 3.75% or more by December, from 42.5% a month ago.
Related: Bank of Japan Pivot to QE Fuel and Fuel on Bitcoin Rally – Arthur Hayes
Higher interest rates, whether individuals, businesses or governments, have a double negative impact on the economy when issuing debts and increasing the costs of refinancing. Furthermore, interest rates above the expected inflation tend to weigh risk-on assets, as fixed income yields become more attractive.
The first indication of decoupling from the stock market suggests investors are seeking higher returns amid signs that the US government is ready to raise its debt cap. As a result, cryptocurrencies are considered to benefit from this environment regardless of the outlook for economic growth. Traders are hoping to add liquidity from the central bank.
This article is for general informational purposes and is not intended to be considered legal or investment advice, and should not be done. The views, thoughts and opinions expressed here are the authors alone and do not necessarily reflect or express Cointregraph’s views and opinions.
