This week could be one of the most decisive for Bitcoin throughout the year 2023, as a key data release might change the entire perspective of risk markets in the coming months. Over the past few weeks, poor projections for some major US Technology sector companies triggered a significant market correction, and this situation could worsen in the upcoming days if the most important event of the week doesn't meet expectations.
On Thursday, August 10, 2023, at 9:30 am, the US Consumer Price Index (CPI) will be released, which could bring an unpleasant surprise if it exceeds the market's current expectation of 0.2% growth for July 2023. In recent months, inflation data has been below expectations, which has kept the markets optimistic about the possibility of an end to the US interest rate hike cycle. However, if inflation data starts to show growth, this wave of optimism might come to an end.
During 2022, risk assets, including cryptocurrencies, experienced depreciation as US interest rates rose. In 2023, with inflation data showing a decline, markets became more upbeat and surged. Nevertheless, this could change as the current US interest rate is the highest in the past 22 years, and the last times interest rates were at such levels, major crises like the dot-com bubble and the 2008 subprime crisis occurred.
Raising interest rates is a measure to control inflation and strengthen the currency. Higher interest rates make fixed-income investments, such as government bonds, more attractive, offering higher returns with lower risk compared to risk assets like stocks and cryptocurrencies. Consequently, investors tend to shift their investments from risk assets to safer ones, leading to reduced demand for stocks and cryptocurrencies.
Furthermore, the over 13% increase in the price of Brent crude oil during July 2023 could have a significant impact on US inflation and future interest rate expectations, affecting risk assets. Crude oil price is a crucial component in the production and transportation costs of goods and services across various sectors of the economy. As crude oil prices rise, production costs may increase, eventually leading to higher prices for products and services, which can contribute to inflationary pressures. The Federal Reserve, the US central bank, closely monitors inflation to make decisions about monetary policy, especially interest rates. If inflation starts to rise significantly, the Fed may consider increasing interest rates to contain inflation, which could have important implications for risk assets, such as stocks and cryptocurrencies.