Rise in Inflation Concerns Result in Sharp Decline of Risk Assets
Concerns regarding inflation in the U.S. sprung back Thursday morning, leading to a drastic fall across risk assets. This downfall hit the cryptocurrency sector the hardest, registering a sharp decline.
The Bouncing PPI and Its Effects on the Market
According to financial reports, the Producer Price Index (PPI) for July zoomed up by 0.9%, which significantly exceeded the estimated figures for 0.2% and a negligible 0.0% earlier in June. This has brought about a year-over-year surge, with PPI reporting a 3.3% hike against the 2.5% predicted and the 2.4% recorded in June.
Big news came when Core PPI, which excludes food and energy, audaciously jumped up 0.9% in July, wildly surpassing the 0.2% expected and 0.0% recorded in June. This lead to a yearly rise in Core CPI by 3.7% against 2.9% expected and 2.6% in June.
Bitcoin Takes a Hit, Plunges Below $119,000
Bitcoin, which was comfortably above $124,000 overnight, took a drastic plunge, sliding below $119,000 due to this news. It’s not only Bitcoin that suffered; other cryptocurrencies were shy of escaping the downfall. Ether (ETH) dropped almost 4%, landing at $4,550. Trading platforms observed similar patterns across other cryptocurrencies.
Other Cryptocurrencies Falling in Line With Bitcoin and Ether
Altcoins like Solana and XRP, which had been on a hot streak recently, were not immune to the market slide. Despite their impressive market runs in recent times, these cryptocurrencies bowed to the market pressures, actually reflecting the challenging circumstances surrounding the market.
Unsettling News from the Labor Market and Its Potential Consequences
Refreshing figures from the labor market didn’t help stabilize the situation either. The initial jobless claims for the week ending August 9 stood at 224,000, which was slightly lower than the expected 228,000. However, the continued claims persisted at 1.95 million, showing us that the labor market is still strained.
This labor market situation, coupled with the strong PPI readings, further solidified the belief that the Federal Reserve might maintain high interest rates for an extended period to curb inflation.
Assumptions Regarding Fed Rate Cuts and Their Downward Revisions
Website sources reveal that the supposed 100% chance for a Fed rate cut in September slipped to 96% in the wake of the new financial data.
The After-effects of This Scenario on Traditional Markets
Not just the cryptocurrency market, but the traditional financial markets were also affected by this inflation news. The U.S. stock index futures fell by around 0.5%, and interestingly, the dollar is gaining ground. With this, the 10-year U.S. Treasury yield has climbed five basis points higher, hovering around 4.25%.
This turmoil underscores the interconnectedness of markets and the influence of inflation fears on both the cryptocurrency and traditional markets. It paints a clear picture of how global financial decisions and trends can have strong consequences on various financial markets, be it cryptocurrency or others.
