Cryptocurrencies Slide Due to Disturbing Preliminary Purchasing Managers' Index Data Affecting Market Conditions
In a surprising turn of events, U.S. wholesale inflation unexpectedly climbed to 3.3% in July, causing a ripple effect in the cryptocurrency market. This unexpected spike has raised concerns about the Federal Reserve's monetary policy, leading to a drop in crypto prices.
The Federal Reserve, facing high inflation rates, may keep interest rates higher for longer. This increased caution about cutting interest rates tightens monetary policy and exerts downward pressure on cryptocurrency prices. The odds of a 25-basis-point cut by the Federal Reserve have fallen from 80% to 75%, and the probability of no rate change in September has risen from 12% to 20%.
This renewed focus on inflation control by the Federal Reserve, as highlighted by Jerome Powell's speeches and FOMC minutes, maintains restrictive interest rates (~4.25%-4.5%) that weigh on cryptocurrencies and other risk assets.
Institutional interest in Bitcoin and Ether continued despite the inflation surprise. On Thursday, Ethereum ETFs saw $639.6 million in net inflows, and U.S. spot bitcoin ETFs recorded $230.8 million in net inflows. However, the crypto market felt the impact of the inflation data.
As of 6 am ET, Bitcoin traded at $118,700, a drop from its pre-report levels of $121,000. Ether followed a similar trend, falling to $4,461 before partially recovering, down from its pre-report levels of $4,700. Bitcoin dropped to an intraday low of $117,254.
The Producer Price Index rose by 0.9% in July, which is the largest monthly gain in over three years. This unexpected spike in U.S. wholesale inflation has caused crypto prices to drop, with market participants now anticipating fewer rate cuts than before — e.g., two cuts instead of three in 2025 — in response to inflation data.
This environment typically leads to a drop or increased volatility in crypto prices due to higher funding costs and reduced speculative appetite. The story is an excerpt from the Unchained Daily newsletter.
[1] "Fed's renewed focus on inflation control" [2] "Unexpected rise in wholesale inflation intensifies fears" [3] "Market participants now anticipate fewer rate cuts" [4] "Higher inflation driven partly by tariff pass-through effects" [5] "Market participants now anticipate fewer rate cuts than before"
- "Given the Federal Reserve's renewed focus on inflation control, investors might be less likely to invest in riskier assets like cryptocurrencies, as higher interest rates can increase funding costs and reduce speculative appetite."
- "The unexpected rise in wholesale inflation has intensified fears about the potential impact on monetary policy, causing a drop in crypto prices as market participants now anticipate fewer rate cuts than before, which could further pressure cryptocurrency values."
