Will the U.S. CPI Decide Bitcoin’s Fate? Focus Shifts to Interest Rate Outlook

▲ U.S. Dollar (USD), Bitcoin (BTC) ©

As expectations for a rate cut have been pushed back following a jobs shock, January’s Consumer Price Index (CPI), set to be released this week, has emerged as the key variable that will determine Bitcoin’s (BTC) short-term direction.

According to cryptocurrency media outlet Decrypt on February 12 (local time), U.S. nonfarm payrolls increased by 130,000 in January, exceeding forecasts and reinforcing expectations that the Federal Reserve (Fed) will hold its benchmark interest rate steady for the time being. Futures markets have postponed the anticipated timing of a rate cut to the second half of this year, rapidly readjusting financial conditions.

The upcoming CPI is expected to come in at 2.5% year-over-year, down 0.2 percentage points from the previous month. Derek Lim, head of research at Caladan, said, “Inflation data is more important than employment,” adding, “Lower-than-expected inflation could increase pressure on the Fed for an earlier rate cut, which would be positive for risk assets.” Conversely, if inflation comes in hotter than expected, the “higher for longer” rate stance could strengthen, putting additional pressure on risk assets.

According to the CME FedWatch tool, the probability that the Fed will maintain rates at 3.50% to 3.75% stands at 94.6%. Tim Sun of HashKey Group said, “Strong employment signals economic resilience, but in the current market it acts as a negative factor,” adding, “As long as Treasury yields remain elevated, financing costs and discount rate burdens will persist, continuing to weigh on high-risk assets like Bitcoin.”

Bitcoin has fallen about 45% from its October peak of $126,210 last year and is seeking stability around the $68,500 level. Over the past week, it has moved within a range of $62,822 to $72,000, with volatility showing signs of easing. As of the time of writing, Bitcoin was down 0.5% over the past 24 hours at $67,200, while Ethereum (ETH) was trading flat at around $1,970.

However, some analysts say the pace of decline is slowing. “From both price action and on-chain distribution perspectives, the speed of decline is clearly decelerating,” Tim Sun said, adding, “But there is still no clear signal of a trend reversal.” Ultimately, the market is expected to gauge whether a short-term bottom has been confirmed or if further correction lies ahead based on the CPI results.

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