Bitcoin and dollar plummet as the S&P 500 rebounds after US inflation hit a 3-month high

Bitcoin (BTC) and the US dollar are falling simultaneously as the S&P 500 hits new record highs on Friday as the Federal Reserve’s preferred inflation indicator climbs to its highest level in nearly three decades.

According to the US Office of Economic Analysis, primary consumer spending (PCI) in the US rose 0.5% in May, falling below estimates of 0.6%.

However, spending rose 3.4% year-on-year, its highest level since 1991. The Federal Reserve regards Core PCI as a benchmark for measuring inflation. The US Federal Reserve has indicated that it will tolerate inflation above 2% until it sparks a stronger labor market recovery.

The prospect of higher inflation led to volatile upward rallies in risk markets, including Bitcoin and the US stock market, in 2020.

Investors see it as a better safe haven as the Fed decides to keep interest rates near zero and maintain a $ 120 billion monthly asset purchase program to help contain the economic impact of the coronavirus pandemic.

However, central bank policy has ultimately lowered US bond yields while holding back dollar demand worldwide, shifting investors to alternative, riskier havens like Bitcoin.

But the leading cryptocurrency has fallen in price according to the latest PCI indicators, suggesting that investors have ignored their safe-haven narrative of the risks associated with the crypto ban throughout the crypto sector.

The BTC / USD exchange rate fell to an intraday low of $ 32,350 after the opening bell in New York on Friday. Meanwhile, Bitcoin’s biggest safe haven rival, Gold, Bitcoin’s biggest safe haven rival, posted gains early morning after a higher core CPI with Comex gold futures trading well above zero in August, 73% at $ 1,789.70 an ounce in morning trading.

The so-called safest haven, the US dollar, was also ignored by investors. As a result, the greenback fell 0.33% to 91.525 against a basket of foreign currencies in early Friday morning trading. It then bounced back to 91,749.

Alexander Vasiliev, Mercuryo’s co-founder and CCO, said demand for the dollar from corporate and retail investors will remain weaker amid the higher inflation outlook. Instead, they prefer to hedge with assets that have less depreciation in value. He explained:

“While Bitcoin has won the argument as a suitable asset in this regard, its current plummeting price would be much cheaper to gold at a time like this, and therefore investors may be more favored than gold. Inflation figures across all asset classes will become more visible in the coming days and weeks. “

Bitcoin also fell as investor focus shifted to Wall Street stock markets following President Joe Biden’s recent 1 ton stimulus package. The S&P 500 Index rose 0.27% to an all-time high of 4,280.55. The technology-oriented Nasdaq Composite gained 0.1%.

Fed and Bitcoin mixed signals

Francesco Sandrini, senior multi-asset strategist at fund management firm Amundi, said inflation will continue to rise in the coming months. In the meantime, markets will struggle to find confidence on how to protect them from higher consumer prices, especially as Fed officials are sending mixed signals on whether or not inflation should point the way to tighter monetary policy.

Fed chief Jay Powell, for example, has called the recent surge in inflation in the US economy, which could wipe out long-term earnings from stocks and bonds, “temporary”. But Fed President St. Louis James Bullard said Thursday inflation could continue to rise in upcoming sessions.

The Federal Reserve’s Open Markets Committee’s recent economic projections went in a restrictive direction when it proposed a rate hike in 2023. As a result, Bitcoin fell on the news.

Related: 4 Reasons Paul Tudor Jones’ 5% Bitcoin Exposure Advice Is Difficult for Large Funds

“We’re still not sure what will happen to inflation over the next five years,” stated CoinShares, a digital wealth management company, in a report released on June 21st.

“But we see the addition of bitcoin and other real assets as a prudent move to protect our portfolio from the risk of runaway inflation,” the company added.

Noting that a strong anti-inflation narrative will keep investors interested in Bitcoin for the coming months, Vasiliev added:

I believe a rebound to $ 40,000 is the target as investors look to break the previous ATH of $ 64,000 in the medium to long term.