According to CoinDesk, the U.S. consumer price index (CPI) report and the Federal Reserve's meeting, both scheduled for Wednesday, could significantly impact the dollar index and Bitcoin. The Labor Department's CPI is predicted to show a 0.1% increase in the cost of living for May, maintaining the annual inflation rate at 3.4%. The core figure, excluding food and energy, is expected to rise by 0.3%, mirroring April's increase. The Federal Reserve is anticipated to keep the benchmark borrowing cost steady between 5.25% and 5.5% and release the interest rate dot plot chart. The inflation data will likely influence these projections and the post-meeting communication from Powell.
Investment banks predict a potential decrease in the core CPI. Core price growth, excluding food and energy, is expected to drop to 3.5% from April's 3.6%, with a regular 0.2% month-over-month increase. Home rent price growth is also expected to slow down. Economists from ING suggest that the Owners' Equivalent Rent, a significant component of the core CPI basket, might decrease.
A potential decrease in shelter price pressures, a recent source of inflation stickiness, could increase hopes for a Fed rate cut, potentially lowering the dollar. A weaker dollar often leads to a rally in risk assets, including Bitcoin. However, if the month-on-month core CPI exceeds 0.4%, the dollar could surge, as per JPMorgan. Since Friday, Bitcoin has lost over 5%, trading near $67,350, while the dollar index has risen by 1% to 105.20.
The Federal Reserve's stance on the inflation trajectory will be a key focus. If the Fed removes the statement about the lack of progress towards the 2% inflation objective, short-dated U.S. Treasury yields and the dollar could drop. Bitcoin has consistently experienced price pullbacks before the Fed decision this year, only to resume the uptrend after the event.