Bitcoin Falls as Hotter U.S. Inflation Lifts Rate Hike Expectations 

Bitcoin has fallen sharply, dropping almost 2% after U.S. inflation data reinforced expectations for further Fed rate hikes. 

The largest cryptocurrency is trading down 2% over the past 24 hours at $81.8K. Weakness is also evident across the crypto sector, with altcoins under pressure. Ethereum trades 4% lower over the past 24 hours, while the total cryptocurrency market cap is down 2% to $2.75 trillion. 

U.S. Inflation Keeps Pressure on the Fed 

U.S. headline inflation rose by the most since April on a monthly basis. 

U.S. CPI rose 0.6% month on month in September, up from 0.4% in August and in line with expectations. On an annual basis, CPI rose 3.7%, ahead of expectations of 3.6%. 

The rise in inflation was driven mainly by fuel, as gasoline prices rose 9.1% in September, the largest increase since the outbreak of the Iran war, which sent fuel prices surging in March. 

Meanwhile, core CPI, which excludes more volatile items such as food and fuel, was also hotter than expected. Core CPI rose 0.3% on a monthly basis, in line with August and defying expectations of a decline to 0.2%. On an annual basis, core CPI rose 2.6%. 

Delving deeper into the data, the increase in prices was reasonably broad-based across the economy. This suggests that while some pressure could be linked to tariffs and energy costs, there are also signs of stickier inflation, with higher fuel prices starting to spill into other areas. 

Rate Hike Expectations Weigh on Bitcoin 

The broad upswing in prices has helped reinforce expectations for additional Federal Reserve rate hikes in the coming months. 

The market is now pricing in a 45% probability that the Fed will hike rates in October, up from around 20% before the data. Meanwhile, expectations that the Fed will hike rates by at least 25 basis points by the end of the year have risen to 95%. 

While the market remains uncertain about a rate hike in October, the data has all but cemented expectations for a move before the end of the year. 

The concern for Bitcoin is that inflation is proving persistent even as energy prices rise, raising the risk that the Fed will need to keep monetary policy tighter for longer. Higher Treasury yields can make non-yielding assets such as Bitcoin less attractive, while a stronger U.S. dollar can also weigh on demand. 

However, the next move will depend on whether further inflation data confirms that price pressures are broadening or whether September’s increase proves largely energy-driven. 

Attention will now turn to U.S. PPI inflation data due tomorrow. There are also several Fed speakers for the market to digest, including a speech by Federal Reserve Chair Kevin Warsh at the International Monetary Fund’s annual meeting in Bangkok, Thailand, tomorrow. 

Two other closely followed Fed officials, Governor Christopher Waller and Cleveland Fed President Beth Hammack, are also speaking at the event. The central bank will then enter its usual communications blackout from Saturday ahead of the FOMC meeting on October 28. 

Bitcoin Forecast – Technical Analysis 

BTC is currently testing a key support level around $82K. Should the price settle below this level, which it has so far respected, this could open the door to a deeper sell-off towards $80.3K, the 50 EMA and the October low.  

A break below support would suggest that buyers are struggling to defend this level, leaving Bitcoin vulnerable to further downside. From here, attention will turn towards the 200 EMA around $75.6K. 

On the upside, buyers need to settle above $84K, this week’s high, to bring $87K back into focus. A recovery above this level would ease the immediate bearish pressure and suggest that buyers are regaining some control. 

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