Immediately after the US announced that the CPI increased more than expected at 9.1%, the Crypto market had a strong downward trend. So what is this indicator?
What is CPI?
CPI is a consumer price index, used to measure the average price of goods and services purchased by all consumers in the consumer market.
More simply, this index represents the relative change in the price of consumer goods over time and is expressed in points. From there, it reflects the level of inflation/deflation of an economy.
How US CPI Affects Crypto Market
The increase of this index is the indirect cause of the decline of the Crypto market.
Because when the US CPI increases, in order to control inflation, the US Federal Reserve (FED) has to reduce the supply of USD and raise credit interest rates.
The rate hike is the main factor that makes both the stock and crypto markets “wobble”.
As an updated Coincu News article, on July 13, after the CPI at 9.1% was announced by the US, causing the largest cryptocurrency in the market – BTC to plummet from $20,100 to $18,910.
Why care about CPI when trading in Crypto
As mentioned above, CPI data is important to investors, speculators, and especially traders, as it is a powerful measure of inflation. Therefore, it has a significant influence on the monetary policy of the central bank.
Typically, higher inflation translates to higher benchmark interest rates set by policymakers, to help dampen the economy and subdue inflationary trends. In turn, the higher a country’s interest rates, the stronger its currency will be.
Conversely, countries with lower interest rates often mean weaker currencies. In addition, CPI data is recognized as a useful measure of the effectiveness of governments’ economic policies in response to the condition of their domestic economies, a factor that traders are concerned with. Foreign exchange can be considered when assessing the volatility of currencies.
DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.
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