Bitcoin Has Its Best Day in Two Months as Markets Anticipate a “summer of Easing.” - Latest Global News

Bitcoin Has Its Best Day in Two Months as Markets Anticipate a “summer of Easing.”

  • BTC rose over 7.5% on Wednesday, achieving its best performance since March 20.

  • Weak US data strengthened the case for a Fed rate cut in September.

  • The BOE and ECB are expected to cut interest rates in June.

Bitcoin {{BTC}} posted its biggest daily gain in nearly two months on Wednesday, as weak U.S. economic data raises the likelihood that the Federal Reserve (Fed) will join its developed world counterparts in easing monetary policy by cutting interest rates over the summer Months.

According to data sources TradingView and CoinDesk, the leading cryptocurrency by market value rose over 7.5% to $66,250, its strongest percentage gain since March 20. Like other risk assets, BTC is sensitive to expected changes in the monetary policy stance of major central banks and rebounds when the cost of borrowing fiat money is expected to fall.

Data released by the U.S. Labor Department on Wednesday showed that the consumer price index (CPI) rose less than consensus estimates in April, pointing to a renewed downward trend in the cost of living in the world’s largest economy. The headline CPI rose 0.3% last month after rising 0.4% in March and February. The core CPI, which excludes food and energy prices, rose 0.3% in April after rising 0.4% in March.

Other data showed overall retail sales growth stalled in April, with sales in the “control group” category included in the GDP calculation falling 0.3% from the previous month.

As a result, interest rate cut expectations have shifted significantly. Fed fund futures show that traders expect the Fed to make its first rate cut of 25 basis points in September. (This year’s summer begins June 20th and ends September 22nd). The Fed recently signaled that it will reduce the pace of quantitative tightening, also a tool to tighten liquidity, starting in June.

It’s not just the Fed. Markets expect the Bank of England (BOE) and the European Central Bank (ECB) to cut interest rates in June. The Swiss National Bank (SNB) and the Swedish Riksbank have already reduced their benchmark borrowing costs.

Central banks around the world are pivoting toward renewed monetary and liquidity easing, which is a positive sign for risk assets including cryptocurrencies, as shown in the chart below from data tracking website MacroMicro.

Proportion of central banks that reduce/increase interest rates.  (MacroMicro)

Proportion of central banks that reduce/increase interest rates. (MacroMicro)

The percentage of global central banks whose last step was to raise interest rates is falling rapidly, while the percentage of banks whose last step was to cut rates is rising.

In other words, the net percentage of interest rate cuts by central banks is increasing.

“The higher the share, the more central banks cut interest rates, which could help improve market liquidity. The lower the proportion, the less liquidity there is in the market,” MacroMicro said in the statement.

The prospect of liquidity easing in the summer should support stocks and give investors enough confidence to “stay further out on the risk curve,” according to brokerage Pepperstone.

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