U.S. inflation slowed to 8.5% in July, Bitcoin jumped to $24,000, and Ethereum hit a 2-month high

A report from the U.S. Bureau of Labor Statistics showed that the Consumer Price Index (CPI) in July was flat month-on-month and up 8.5% year-on-year, lower than the market expectation of 8.7%, partly due to falling energy prices. Excluding the sharp fluctuations in food and energy prices, the core CPI remained unchanged at 5.9% in the past 12 months, slightly lower than the expected 6.1%. After the release of the CPI data, the three major U.S. stock index futures rose sharply, with Nasdaq futures rising by more than 2%, Dow futures rising by 1%, and S&P 500 futures rising by 1.5%.

Following the report, Bitcoin rallied to $24,000 and Ethereum rose to $1,847, its highest level since June 7. This indicated that cryptocurrency traders were relieved that the Fed might ease its aggressive measures to tighten monetary conditions.

Most cryptocurrencies fell across the board on Tuesday in anticipation of the report, with bitcoin falling about 4% to $23,100 after rising above $24,000 on Monday. Ethereum fell more than 5%.

Ethereum fell more than 5%.

Traders are now betting on a 65% chance that the Fed will raise rates by 50 basis points in September, compared with 32% a day ago, according to the CME FedWatch Tool. Lately, traders have been pricing in a 75 basis point increase as more likely after last week’s jobs report showed the economy is still in very good shape to sustain more rate hikes. Several central bank officials have signaled they will continue tightening policy until they see a significant decline in inflation.

Richard Carter, head of fixed rate research at UK-based investment manager Quilter Cheviot, said: “The Fed will be cheered by this news, especially the fact that core inflation was also lower than expected. They still need to raise rates at their next meeting in September, but this reduces the risk of another 75 basis point increase and looking ahead we may see a calmer market than has been seen so far.”

Howard Greenberg, cryptocurrency educator at Prosper Trading Academy, said: “I think the market will continue to have confidence in the Fed’s plan to raise interest rates at the September meeting, and we will continue to see the rally accelerate in the crypto market.”

Traders were clearly relieved because falling inflation should signal to the Federal Reserve that less aggressive rate hikes will be necessary in the future. This, in turn, should take some pressure off risk assets, including crypto.

Raoul Pal, founder of Global Macro Investor, responded: "Peak inflation is giving way to concerns about peak growth. I do think that markets will react positively to weaker growth, not negatively."

William Clemente , chief analyst at Blockware, was more cautious, describing the rebound in risk assets as continuing “short-term.”

However, the dollar continued its downward trend since mid-July. The U.S. dollar index (DXY) fell 1.3%, according to well-known trader Pierre. Sven Henrich, founder of the analytics firm NorthmanTrader, described the DXY as "crushed."