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Bitcoin Bounces Back: Relief Rally After Cooler CPI, Fed's Cautious Tone

The lower-than-expected inflation figures eased concerns about aggressive interest rate hikes from the Fed, which could potentially stifle economic growth.

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Bitcoin staged a dramatic comeback after Wednesday's release of key economic data, surging to the $70,000 mark last night before paring its gains to sit at around $68,000 currently.

Wednesday's rally follows a period of volatility, with Bitcoin experiencing a $4,000 decline over five days leading up to the Federal Open Market Committee (FOMC) meeting and the release of May's Consumer Price Index (CPI) data.

The CPI figures, which measure inflation, came in slightly lower than anticipated, easing concerns about rising inflation and potential aggressive interest rate hikes by the Fed.

MoM: 0% [Est. 0.1%, Prev. 0.3%]
YoY: 3.3% [Est. 3.4%, Prev. 3.4%]
Core MoM: 0.2% [Est. 0.3%, Prev. 0.3%]
Core YoY: 3.4% [Est. 3.5%, Prev. 3.6%]

This positive surprise seems to have validated our earlier predictions that the recent sell-off in the crypto market might have been overdone.

The stock market also reacted favorably to the CPI data, with major indices like the S&P 500 and the Dow Jones Industrial Average experiencing a positive rally, with the former hitting an intraday record of 5,447.25 and a record of 5,421.03 at market close.

However, the FOMC meeting offered a more cautious outlook than some anticipated. While the FED acknowledged progress in curbing inflation, they also raised their 2024 inflation forecast to 2.6% from 2.4%.

Additionally, the FED's dot plot, which reflects individual policymakers' interest rate projections, showed just one rate cut expected in 2024 compared to the three previously anticipated. This shift in stance triggered a minor price correction in Bitcoin, but the cryptocurrency has displayed remarkable resilience overall.

With limited interest rate adjustments anticipated in the immediate future, brn analyst Valentin Fournier said he expects Bitcoin to enter a consolidation phase: "While a strong jobs report sparked concerns, a cooler-than-expected CPI provided a much-needed reprieve. The Fed's wait-and-see approach, with a hint of a potential rate cut later this year, seems to have been priced in by the market. We anticipate Bitcoin to consolidate its gains and hold steady above $70,000 in the near term."