The cryptocurrency market has witnessed a significant shift in sentiment, with Bitcoin pulling back and forming a risky pattern as market participants reassess their expectations for Federal Reserve interest rate cuts. This development comes amidst concerns about stagflation, characterized by high inflation and slow economic growth.
Market Sentiment Shifts
The Bitcoin price had reached an all-time high of $124,420 but has since retreated to $117,760, with its market cap decreasing from $2.47 trillion to $2.34 trillion. This decline is attributed to the declining odds of Federal Reserve cuts, which have fallen from 80% to 70% as of the latest Polymarket data. The change in sentiment was sparked by the release of the producer price index data, which soared to 3.6% in July, leading to jitters about the Fed’s potential interest rate cuts in September.
Factors Influencing Market Sentiment
The Bureau of Labor Statistics’ consumer inflation report had initially encouraged the market, with the core Consumer Price Index rising to 3.1% and the headline figure remaining unchanged at 2.7%. However, the subsequent release of the producer price index data and the University of Michigan’s inflation expectation report, which showed a jump in inflation expectations for 2026 to 4.9%, has led to concerns about stagflation. The weak nonfarm payrolls report earlier this month has further contributed to these concerns.
The University of Michigan’s consumer sentiment data, which fell short of consensus forecasts, has also had a stagflationary impact. As noted by Mohamed A. El-Erian, the consumer confidence index declined from 61.7 in July to 58.6 this month, with current conditions at 60.9 and expectations at 57.2. This decline in consumer sentiment has added to the uncertainty surrounding the Federal Reserve’s interest rate decisions.
Technical Analysis
From a technical analysis perspective, the daily timeframe chart shows that Bitcoin price has come under pressure in the past few days, forming a highly bearish double-top pattern at $123,200, with a neckline at $112,000. The Relative Strength Index and the MACD indicators have also formed lower lows and lower highs, indicating a bearish divergence pattern. This suggests that the Bitcoin price will likely pull back in the next few days before potentially resuming its uptrend.
BTC price chart | Source: crypto.news
Expert Insights and Data
Austan Goolsbee, an FOMC member, has warned that the bank needs more data to determine the next course of action, given the impact of new tariffs will take time. Historically, the Bitcoin price has performed well when the Federal Reserve is cutting interest rates or when cut expectations are rising. However, the current decline in cut odds has led to a pullback in the Bitcoin price.
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