Key facts
- US annual inflation rose to 4.2% in May, according to CPI figures.
- The inflation data has reduced expectations for Federal Reserve rate cuts.
- Analysts suggest that Bitcoin and gold may face continued downward pressure.
- Bitcoin has declined 36% and gold is down 23% year-to-date.
- Geopolitical tensions, particularly involving Iran, add to market uncertainty.
US annual inflation surged to 4.2% in May, according to figures released Wednesday, potentially creating further headwinds for Bitcoin and gold. The rise in the Consumer Price Index (CPI), a key measure of inflation, has dampened expectations for imminent interest rate cuts by the Federal Reserve, with some analysts now considering the possibility of rate hikes later this year.
Bitcoin has experienced a challenging first half of the year, with its price falling 36% since January. Gold has also seen a decline, down 23% from its January peak, while crude oil prices have surged more than 50% over the same period. Analysts suggest that the current macro environment, characterized by elevated inflation and geopolitical uncertainty, particularly concerning Iran and potential oil supply disruptions, is unfavorable for risk assets.
Markus Thielen of 10x Research stated that the current macro environment continues to be a headwind for Bitcoin, and he does not anticipate significant reallocation into the cryptocurrency by Wall Street investors without further evidence of sustainably lower inflation. Iggy Ioppe, chief investment officer at Theo, noted that the in-line CPI print keeps the Fed cautious and data-dependent, suggesting no immediate rush to cut rates. He added that real yields remain a key variable for gold, and elevated opportunity costs of holding a non-yielding asset persist without imminent rate cuts.
Tim Sun, senior researcher at HashKey Group, indicated that while rate hike expectations are increasing, the probability of the Fed raising rates this year remains relatively low. He believes that overall risk appetite will only truly reverse when inflation drops, making rate cuts viable and improving liquidity. CME futures currently predict a 98.4% probability of no change in rates at the Fed's upcoming meeting on June 17.