At 20:30 on the evening of June 12, Beijing time, the United States released CPI data for May. The data showed that the U.S. Consumer Price Index (CPI) was flat in May, higher than economists expected by 0.1% and lower than 0.3% in April. Compared with the same period last year, the CPI rose by 3.3%, while analysts predicted 3.4%. The core CPI, which excludes food and energy costs, rose by 0.2% in May, better than the expected 0.3% and 0.3% in April. The core CPI rose by 3.4% year-on-year, higher than the expected 3.5% and 3.6% in April. Bitcoin (BTC) welcomed the weak inflation data, and the price jumped as high as $70,000, up nearly 6% in the past 24 hours. After inflation data fell rapidly in 2022 and 2023 as the Federal Reserve raised interest rates, the trend stagnated in the previous months, stubbornly above the policymakers' 2% target, pouring cold water on market participants' expectations of rate cuts. At the start of the year, traders were expecting five to six rate cuts of 25 basis points each by the end of December through 2024, but that was narrowed to one to two before today’s CPI report, with the first not due until September, according to the CME FedWatch tool. Crypto prices have been “highly sensitive” to U.S. economic data recently, K33 Research noted in a report earlier this week. Hotter inflation data recently and the resulting waning hopes for rate cuts have pushed Bitcoin from an all-time high of more than $73,000 in March to below $57,000 in May. Traders expect looser monetary conditions to drive the next leg of the cryptocurrency rally to new all-time highs. In stark contrast to expectations in the U.S., several major central banks around the world have already begun to cut their benchmark rates, with the European Central Bank and the Bank of Canada cutting rates last week, which helped push the U.S. dollar index (DXY) to a one-month high. Investors will also be keeping a close eye on the Federal Reserve’s “dot plot” of interest rate projections from Federal Open Market Committee members, which will be released later today, which could affect asset prices.

K33 Research said that tomorrow’s Federal Reserve’s interest rate forecast “dot plot” and Chairman Powell’s forward guidance will be key to the next move in the digital asset market.

K33 analysts said: "The macro performance on Wednesday is ready, with May CPI data and the Fed's interest rate decision both driving the market.

Investors will be closely watching the interest rate outlook from Federal Open Market Committee (FOMC) members, the so-called "dot plot," to see how many times policymakers expect to cut rates this year based on recent sticky inflation readings and weak economic data.

“The FOMC dot plot, along with forward guidance from Jerome Powell’s press conference, may be the most substantial price drivers as BTC regains focus on market rate expectations.”

Market watchers pointed to some positive signs during the sell-off that could point to a quick economic recovery.

Bitcoin has experienced multiple pullbacks this year ahead of Federal Open Market Committee (FOMC) meetings, only to reverse the move soon after, anonymous crypto analyst Gumshoe noted in an X post.

It is worth noting that after the release of CPI data, interest rate futures now imply that the probability of the Fed cutting interest rates before September is about 70%; swap contracts show that the market expects the Fed to cut interest rates by 25 basis points in November with a 100% probability.

The swap market fully prices in two 25 basis point rate cuts by the Federal Reserve in 2024.

This may to a large extent imply that the timing and number of interest rate cuts in the "dot plot" have been "revised". Although the number of interest rate cuts in 2024 is destined not to be as satisfactory as expected at the beginning of the year, the belated interest rate cut may be just right.