Bitcoin Eyes CPI Report for Clues, but a Major Breakout Remains Unlikely

Bitcoin Eyes CPI Report for Clues, but a Major Breakout Remains Unlikely

A softer U.S. inflation report later Wednesday could provide a tailwind for risk assets like Bitcoin (BTC). However, those anticipating a major rally may need to temper their expectations.

At 13:30 UTC, the U.S. Labor Department will release January’s Consumer Price Index (CPI) report. According to Reuters estimates tracked by FXStreet, the data is expected to show a 0.3% month-over-month increase in the cost of living, a slight deceleration from December’s 0.4% rise. On an annualized basis, inflation is projected to remain steady at 2.9%.

Core inflation, which excludes volatile food and energy prices, is forecast to have risen 0.3% month-over-month, up from December’s 0.2%. The annualized core figure is expected to decline slightly from 3.2% to 3.1%.

If inflation comes in lower than expected (particularly the core figure) it could reinforce market expectations for further Federal Reserve interest rate cuts. This, in turn, could weaken the U.S. dollar and lower Treasury yields, making riskier assets like bitcoin more attractive. According to the CME FedWatch Tool, markets currently assign a 54% probability that the Fed will either implement one rate cut or keep rates unchanged throughout the year.

While a shift in rate-cut expectations could provide some support for BTC, it’s unlikely to be the catalyst needed to push the cryptocurrency beyond its current trading range of $90,000 to $110,000.

One key reason is that forward-looking inflation metrics suggest price pressures may pick up again in the coming months. Trade war concerns and rising inflation swaps—financial instruments that reflect inflation expectations—indicate that the market foresees higher inflation ahead. Data from Mott Capital Management shows two-year inflation swaps climbing to nearly 2.8%, their highest level since early 2023, with five-year swaps following a similar trajectory.

This signals that inflation’s progress toward the Fed’s 2% target may be stalling, potentially due to trade tariffs imposed by the Trump administration. If inflation expectations continue rising, the Fed could have limited flexibility to implement aggressive rate cuts.

Additionally, some investment banks remain skeptical that a softer January CPI print will alter the Fed’s cautious stance. Fed Chair Jerome Powell reinforced this notion during his testimony to Congress on Tuesday, stating that the central bank is in no rush to cut rates.

RBC echoed this sentiment in a weekly note, stating, “We don’t expect that progress on inflation will be enough to prompt additional interest rate cuts from the Fed this year,” adding that January’s CPI report is likely to show only modest relief in price pressures.

BlackRock also believes persistent services inflation will keep the Fed from easing policy anytime soon. “Even as December’s CPI report showed signs of inflation pressures easing, wage growth remains above levels that would allow inflation to return to the Fed’s 2% target. We see persistent services inflation forcing the Fed to keep rates higher for longer,” the firm noted.

Should the CPI report come in hotter than expected, BTC may edge toward the lower end of its $90K-$110K range as investors reassess their expectations for Fed policy.