The Personal Consumption Expenditures (PCE) Price Index, a key indicator of inflation in the US, rose above expectations in June. The core PCE, the Fed's most closely watched indicator, remained steady at 2.8%, but exceeded expectations, casting a shadow over interest rate cut hopes. Cryptocurrencies reacted negatively to this development.
According to data published by the Bureau of Economic Analysis of the US Department of Commerce, headline PCE inflation rose to 2.6% year-over-year in June. This increase followed the revision of May's data from 2.3% to 2.4%. Core PCE, however, remained stable at 2.8%, exceeding expectations of 2.7%. Both figures increased by 0.3% month-over-month.
The Fed will not rush to cut interest rates
PCE data is critical to the Fed's monetary policy because it reflects not only price increases but also consumer behavior. In light of the latest data, the likelihood of a rate cut has diminished for September. As you may recall, Fed Chair Jerome Powell, who left interest rates unchanged at 5.25%-5.50% at his July 30th meeting, said there would be no rush to cut interest rates and that future data should be awaited.
In his speech, Powell sent a clear message to the markets, stating, "Tariffs are inflationary, employment is strong, upside risks to inflation remain dominant, and we will wait and see before we cut interest rates." These statements were a direct response to President Trump's calls for a rate cut. Trump, however, continues to criticize Powell, calling him a "dunce."
Cryptocurrencies fall, stock markets remain on hold
The exceeding expectations of inflation data led to brief selling pressure in the crypto market. Bitcoin fell 0.11% to $118,327, Ethereum fell 0.75% to $3,815, and XRP fell 0.81% to $3.11. BNB fell 0.56%, and Solana fell 1.25% to $177.94. The total cryptocurrency market capitalization stood at $3.88 trillion at the time of writing.
However, strong earnings reports from major companies like Microsoft and Meta yesterday may have eased some pressure on crypto assets. However, investors are now focusing on tomorrow's employment data. If these data are also strong, the Fed could be expected to maintain its high interest rate policy for an extended period, potentially leading to a sharper correction for crypto markets.
Dollar strengthens
Following the PCE data, the dollar recouped its losses during the day. The US Dollar Index settled around 99.90. On a weekly basis, the dollar strengthened against all major currencies, particularly the euro. The dollar gained 2.83% against the euro for the week, while it gained 1.58% against the British pound and 1.59% against the Japanese yen.
