On May 26, Bitcoin (BTC) experienced a sudden increase in value when US macroeconomic data was released that showed a rise in Personal Consumption Expenditures (PCE) since October 2022. The pairing of BTC/USD climbed to nearly $27,000 on Bitstamp as a result. This reading was expected to be a challenge for risk assets, including cryptocurrency, as it suggests that inflation remains persistent and may require further financial tightening to control it. The Kobeissi Letter, a financial commentary resource, responded by stating that this was a significant setback to the Federal Reserve’s fight against inflation. They also noted that expectations for interest rate hikes from the Federal Reserve were “shifting rapidly” due to the PCE event.

Relief for traders as Biden administration nears debt ceiling deal

Traders breathed a sigh of relief when it was announced that the Biden administration was nearing a deal on the debt ceiling, with the deadline only a few days away. The S&P 500 and the Nasdaq Composite Index both rose 1% and 1.65%, respectively, at the time of writing.

Potential for upside continuation

Michaël van de Poppe, founder and CEO of trading firm Eight, noted that Bitcoin may continue to increase in value. He commented on the day’s price action, stating, “That’s step one for Bitcoin, as we reclaim $26,600 and are looking for continuation towards the range highs.” He also cautioned that PCE was “not a great sign” for risk assets and noted the knee-jerk reaction for the United States dollar strength, which is traditionally inversely correlated with cryptocurrency. The US Dollar Index (DXY) hit 104.4 on the day, its highest levels since March 17. Popular trader Justin Bennett wrote in a dedicated forecast that “some consolidation following this month’s rally would be healthy for the dollar. But a daily and weekly close above 104.20 opens up 105.00 early next week. The only thing that would turn me bearish on the DXY is a daily close below 103.50.”

The PCE gains were relative, and according to financial commentator Tedtalksmacro, the US PCE data came in above analyst expectations. However, on a 3-month annualised basis, core PCE printed sharply lower, down to 4.2%. This news provided relief for traders, even though it implied that inflation remains high and may require further financial tightening. CME Group’s FedWatch Tool showed that the market now narrowly favors a fresh hike in June, whereas before, it was more than 80% certain that a pause would occur.

Analysis

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