April's U.S. CPI below expectations at 0.3%; Bitcoin reaches $63.7K

In April, the U.S. government's Consumer Price Index (CPI) reported a slight decrease in the monthly inflation rate, with a rise of 0.3% compared to 0.4% in March and the predicted 0.4% by economists.

According to the remaining portion of the report, there were slight decreases that aligned with predictions. Compared to the previous year, CPI saw an increase of 3.4%, in line with the projected 3.4% and March's 3.5%.

The core CPI, which does not include food and energy expenses, rose by 0.3% in April, matching the expected 0.3% and March's 0.4%. On a yearly basis, core CPI showed a growth of 3.6%, in line with the estimated 3.6% and March's 3.8%.

The value of bitcoin experienced a 1% increase after the Wednesday morning announcement, reaching $63,700. Due to a decrease in inflows and possible reversals, the expected boost from the spot ETF has not occurred in the past few weeks, causing bitcoin's price to face downward pressure due to the anticipation of prolonged higher interest rates.

In 2023, there was a consistent decrease in inflation which led many, including the U.S. Federal Reserve, to anticipate easier monetary policies for the entirety of 2024.

However, there has been a slight increase in inflation so far this year, coupled with a growing economy, which has dispelled any possibility of immediate central bank rate cuts.

Prior to the release of Wednesday's CPI report, the likelihood of a summer rate cut by the Fed was low and traders had factored in a 50% chance of a move in September, according to the CME FedWatch Tool.

Simultaneously with the inflation figures, retail sales data for April was also released, revealing a stagnant result compared to the predicted 0.4% increase and the previous month's 0.6%. Excluding automobile sales, retail sales saw a 0.2% growth in April, meeting expectations but lower than the 0.9% recorded in March.

Upon checking traditional markets, it can be seen that they have responded positively to the recent soft inflation and economic data.

The S&P 500 futures have increased by 0.5%, while the 10-year Treasury yield has decreased by seven basis points to 4.37%. The U.S. dollar index has also experienced a decline of 0.5%, while gold has gained 0.7%.

The road ahead for inflation and interest rates

Despite the recent softening trend in inflation, there is still uncertainty regarding the trajectory of future interest rates.

The Federal Reserve is predicted to make a rate reduction in September based on market projections, as indicated by the CME FedWatch Tool, with a likelihood of 50%. However, some economists argue that the central bank may need to maintain higher rates for longer to ensure inflation remains under control.

The debate around interest rates continues as economic indicators evolve and policymakers assess the situation.

Market reactions and investor sentiment

The release of the CPI report has set off a wave of scrutiny among investors, who are closely examining price movements and seizing short-term opportunities to optimize their investment strategies and rebalance their portfolios accordingly.

Market reactions to economic data, such as the CPI report, play a pivotal role in shaping investor sentiment and guiding asset price movements, making them an essential aspect of financial markets.

In light of the latest Consumer Price Index report, financial market traders are carefully scrutinizing price movements and capitalizing on short-term opportunities to refine their investment strategies and adjust their portfolios as needed.

Furthermore, the release of the latest CPI data serves as a crucial benchmark for investors seeking to understand the potential influence of key economic indicators on market trends in the near future.