Bitcoin Has Best Day in 2 Months as Markets Anticipate a ‘Summer of Easing’

BTC surged over 7.5% on Wednesday, marking its best performance since March 20.

Weak US data strengthened the possibility of a Fed rate cut in September.

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

Bitcoin {{BTC}} posted its biggest single-day gain in nearly two months on Wednesday as weak U.S. economic data raised the possibility that the Federal Reserve (Fed) will join its developed-nation counterparts in easing monetary policy with interest rate cuts in the summer. months.

The leading cryptocurrency by market cap rose 7.5% to $66,250, according to data sources TradingView and CoinDesk; This is the largest percentage increase since March 20. Like other risk assets, BTC is sensitive to expected changes in the monetary policy stance of major central banks and rises when the cost of borrowing fiat money is predicted to fall.

Data released by the US Labor Department on Wednesday showed the consumer price index (CPI) rose less than consensus forecasts in April, signaling a renewed downward trend in the cost of living in the world’s largest economy. Headline CPI increased by 0.3% last month, following a 0.4% increase in March and February. Core CPI, which excludes food and energy prices, increased by 0.3% in April, following a 0.4% increase in March.

Other data showed overall retail sales growth stalled in April, with sales in the “control group” category that feeds into the GDP calculation falling 0.3% month-over-month.

Therefore, interest rate cut expectations have changed significantly. Fed fund futures show investors expect the Fed to cut rates by the first 25 basis points in September. (This year’s summer is planned to start on June 20 and end on September 22). The Fed recently signaled that it would reduce the pace of quantitative tightening, which is also a liquidity tightening tool, starting from 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 Sweden’s Riksbank have already reduced benchmark borrowing costs.

Central banks around the world are turning to renewed monetary or liquidity easing, which is a positive sign for risk assets including cryptocurrencies, as evidenced by the chart below from data tracking website MacroMicro.

Interest rate reduction/increase rate of central banks. (MacroMicro)

While the percentage of global central banks whose last move was an interest rate increase is rapidly decreasing, the percentage of banks whose last move was an interest rate cut is increasing.

In other words, the net percentage of the central bank’s interest rate cuts is increasing.

“The higher the rate, the more central banks are cutting interest rates, which could help improve market liquidity. The lower the rate, the less liquidity there is in the market,” MacroMicro explained.

Easing liquidity over the summer should support stocks and provide investors with enough confidence “to stay further out of the risk curve,” according to broker Pepperstone.