Bitcoin price rise pulls crypto market cap above $1 trillion; US headline CPI forecast to rise; core to fall

The crypto market is on the rise ahead of the release of the US Consumer Price Index (CPI) for August. The impact on Bitcoin price and other crypto assets will largely depend on overall financial market volatility, following the release. In effect, this means if there is a big miss, either higher or lower, especially with regards to core CPI (not including energy and food). 

Read more - US CPI Preview: Forecasts from 10 major banks, strong headline with rising energy prices

US CPI to make an unfavorable turn

The United States CPI will be released on Wednesday, September 13. Inflation in the US could see a second consecutive rise, as the headline CPI for the month of August is forecasted to rise to 3.6% from 3.2% in July, on a yearly basis. 

The core CPI, on the other hand, could likely take a downturn with the possibility of a drop to 4.3% from 4.7% in July, year on year. The reason behind the divergence between headline and core is the sharp rise in Oil prices – which are not included in core – at the same time as other price pressures are easing in the US.

Citibank economist commented on the upcoming inflation data, stating,

“We expect a stronger increase in core inflation in August after two consecutive 0.16% MoM increases, with core CPI rising 0.3% MoM. However, at 0.252% MoM unrounded, core CPI would be close to printing another 0.2% increase, albeit still a stronger gain compared to June and July. We also expect some further slowing in shelter prices with 0.44% primary rents and 0.46% owners’ equivalent rent. Meanwhile, headline CPI should rise a strong 0.6%, the strongest increase since June 2022. This will be due to both a rise in retail gas prices and further strength in other energy components like utility gas.

The CPI will impact the Federal Reserve’s (Fed) decision-making ahead of its Federal Open Market Committee (FOMC) meeting next week. If core CPI comes out stronger than expected, the Fed may feel the need to further raise interest rates. As things stand, this would be a big surprise since core CPI is forecast to fall. According to FXStreet analyst Matias Salord, 

“If the inflation data turns out in line or close to projections, it should not generate changes in Fed expectations. The US economy is performing better than others, but not due to a growth boom that requires higher rates. Similarly, a low number will not lead to a more dovish Fed. A larger rebound than forecasted would leave room for a more hawkish message, and possibly expectations of higher rates for a longer period, but not necessarily more hikes.

Bitcoin price decline on the cards

Bitcoin price, trading around $26,000, is only likely to be affected by the release of CPI data if core CPI surprises to the upside rather than slowing as predicted, or there is a very large rise in headline CPI. Should the US Bureau of Labor Statistics (BLS) meet the expectations of the market, however, BTC is unlikely to be impacted. 

A surprise jump in core inflation would probably erase the recovery made in the past 24 hours as Bitcoin price climbed above $26,000. Most altcoins’ values rose, too, bringing the market capitalization above $1 trillion. This might get reversed, however, should core CPI note a rise. 

A bearish turn of events could push BTC to test the support level at $24,578, falling through, which could bring it to a six-month low of $21,000.

BTC/USD 1-day chart

If core CPI surprises to the downside, however, and undercuts expectations, the reverse might happen. Bitcoin price could continue its uptick and flip the resistance at $26,430 into support, pulling itself up to $27,418. Breaching this resistance would also turn the 50 and 200-day Exponential Moving Average (EMA) lines into a support floor.

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