5 min readBitcoin is falling sharply, dropping from yesterday’s $76K high to below $72K at the time of writing, after stronger-than-expected US wholesale inflation and rising oil prices unsettled markets ahead of the Federal Reserve rate decision later today.
The US Producer Price Index (PPI), which measures inflation at the factory gate, rose to 3.4% year-on-year in February, up from 2.9% in January and above expectations of 2.9%. On a monthly basis, PPI jumped 0.7%, well ahead of the 0.3% forecast.
The data suggests that inflation pressures were already building in the supply chain even before the escalation of the Iran conflict, which has since pushed energy prices sharply higher. Oil has surged around 40% since the start of March, adding to concerns that inflation could remain elevated in the coming months.
Treasury yields, which have been rising steadily since the start of the conflict, are pushing higher again. The US 10-year Treasury yield has climbed to around 4.23%, up from 3.96% at the end of February. Rising yields typically draw capital toward fixed-income assets and away from riskier assets such as cryptocurrencies.
Focus turns to the Fed
Today’s inflation data comes just hours before the Federal Reserve’s interest rate decision. The central bank is widely expected to leave rates unchanged in the 3.5%–3.75% range.
With that outcome largely priced in, attention will shift to the Fed’s updated projections and the dot plot for clues on how policymakers view the recent surge in oil prices and its impact on inflation and growth.
The Fed may revise growth forecasts lower while nudging inflation projections higher. However, the key question is whether policymakers will still signal a rate cut later this year.
What it means for Bitcoin
A combination of stronger-than-expected inflation and a more hawkish Fed would likely weigh further on Bitcoin. The cryptocurrency tends to perform better in lower-interest-rate environments, where liquidity is more abundant.
If yields continue to rise and rate-cut expectations are pushed further out, Bitcoin could struggle to sustain its recent gains in the near term.
And Gold?
Gold is also falling sharply as markets react to rising Treasury yields and reposition ahead of the Federal Reserve’s rate decision.
Despite heightened geopolitical tensions, gold has failed to attract sustained safe-haven demand since the start of the Iran conflict. Instead, it has come under pressure as expectations for Fed rate cuts are pushed further out, lifting the US dollar.
As a result, gold has fallen below the key $5,000 psychological level and its 50-day simple moving average for the first time in 146 trading days.
If the Federal Reserve delivers a more hawkish message and Treasury yields continue to rise, gold could face further downside in the near term.
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