Bitcoin Falls 6% After June CPI Data Cuts Fed Rate Expectations

Bitcoin dropped nearly 6% on Tuesday, trading at $116,227, after the latest U.S. inflation report showed prices rising faster than economists had expected. The decline followed a multi-week rally that had pushed Bitcoin to new record highs of $123,300 earlier this month.

The shift came as traders responded to the June Consumer Price Index (CPI), which climbed 0.3% from May. The annual inflation rate rose to 2.7%, up from 2.4% the previous month. Core inflation, which excludes food and energy, increased 0.2% on the month and is now running at 2.9% year-over-year.

Inflation Data Alters Federal Reserve Rate

Before the CPI release, financial markets were pricing in a September interest rate cut with a probability of over 80%, according to CME FedWatch. After the data, that probability fell to 60%.
Futures markets also reduced expectations for multiple cuts this year.

Higher-than-expected inflation complicates the Federal Reserve’s plans. Holding rates higher for longer may be necessary if price pressures do not ease, even as parts of the economy show signs of cooling.

Political Risk: Trump vs. Powell

In addition to the inflation data, traders are watching potential changes in Federal Reserve leadership. Former President Donald Trump, currently leading in some election polls, has said he may seek to replace Fed Chair Jerome Powell if elected.
According to estimates from Deutsche Bank, removing Powell could trigger a sudden drop in the U.S. dollar of 3% to 4% and push Treasury yields higher by 40 basis points. Such a move would likely cause sharp market swings in both traditional assets and cryptocurrencies.

Tariffs and Global Growth Remain Factors

The Trump campaign’s proposed tariffs on imports from the European Union and China are expected to continue feeding into inflation data in the months ahead. Several categories in the CPI report—including household goods and electronics—showed early signs of price increases linked to trade policies.

At the same time, China reported 5.2% GDP growth for the second quarter. This met government targets but kept pressure on global markets concerned about supply chains, trade relations, and currency stability.

Bitcoin and Crypto: Macro Sensitivity Returns

Bitcoin’s rally to new all-time highs above $123,000 last week was fueled in part by expectations of Fed rate cuts and a weaker U.S. dollar. Those hopes are now in question.

Higher interest rates typically weigh on Bitcoin because they:

• Strengthen the dollar, making crypto less attractive as an inflation hedge.

• Increase bond yields, drawing capital away from high-risk assets.

• Suppress liquidity, reducing speculative flows into digital assets.

Over the past 12 months, Bitcoin has become more sensitive to Treasury yield moves. The 10-year U.S. Treasury yieldrose to 4.48% following the CPI data, reflecting the bond market’s reassessment of Fed policy.

Stock Market Reaction: Tech Up, Dow Down

U.S. equity markets showed a mixed response to the inflation data.

• S&P 500 futures: +0.3%

• Nasdaq 100 futures: +0.6%

• Dow Jones futures: –0.2%

The tech sector led the gains, with Nvidia jumping 5% pre-market after confirming it would resume sales of its H20 AI chips to China under a newly granted export license. The move comes amid broader U.S.-China tech tensions but gave a fresh boost to the AI trade.

Attention Turns to PPI, Core PCE, and the Fed’s July Meeting

Traders are now looking toward additional reports that will shape the Federal Reserve’s decisions in the coming weeks. Key releases include:

• Producer Price Index (PPI) – due Thursday

• Core PCE Inflation – scheduled for July 26

• FOMC Policy Meeting – July 31

The next round of inflation and employment data will likely determine whether the Fed stays on hold or begins easing rates later this year.

Stocks Show Mixed Reaction

U.S. stock futures were uneven after the CPI report:

Nvidia rose over 5% premarket after confirming the resumption of H20 AI chip shipments to China under a new export license. The announcement provided a boost to the broader tech sector, partially offsetting declines in other parts of the market.

Bitcoin Remains Sensitive to Interest Rates

The current cycle in crypto markets remains linked to interest rate expectations. When borrowing costs are high and Treasury yields climb, speculative assets such as Bitcoin tend to face pressure.
Bitcoin’s recent decline reflects this connection, as tighter financial conditions reduce demand for digital assets.

With new factors in play—ranging from trade policy to central bank leadership changes—market participants are closely tracking macroeconomic developments that go beyond the crypto sector itself.

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