Tonight's CPI data will directly impact the market's expectations for Federal Reserve policy, which in turn will influence global liquidity trends, especially critical for the cryptocurrency sector:
If CPI is lower than expected
The market will interpret it as a signal of cooling inflation, potentially bringing an end to the rate hike cycle earlier, and increasing expectations for rate cuts. The US dollar will be under pressure and weaken, with expectations of liquidity easing likely to boost risk assets, and cryptocurrencies, being high-beta assets, usually react strongly.
If CPI is higher than expected
It indicates that inflation remains sticky, and the Federal Reserve may maintain high interest rates for a longer period, even ruling out further tightening. A stronger dollar will tighten global liquidity, suppressing risk appetite, and the cryptocurrency sector is likely to face pressure along with other risk assets.
If CPI meets expectations
The market has largely priced this in, with short-term volatility likely narrowing, and the trend returning to technical analysis and individual fundamentals. However, it is important to note that even if the data meets expectations, subtle changes in component structure or forward guidance may still trigger expectation adjustments.
