Bitcoin Posts Biggest Weekly Gain Since March as US Inflation Expectations Cool

Bitcoin recorded its biggest weekly gain since March, supported by easing US inflation expectations.

CoinDesk reported on July 6 that Bitcoin rose about 7% in the week through July 5. Over the same period, the US two-year breakeven inflation rate fell below the Federal Reserve's 2% target, while longer-term breakeven rates have also dropped sharply in recent weeks.

Breakeven inflation measures market expectations for future price increases through the gap between yields on nominal Treasuries and inflation-linked bonds. The two-year breakeven rate and West Texas Intermediate crude have both returned to levels seen before the outbreak of the Iran war in late February. That has prompted some market participants to question inflation concerns, the possibility of Fed rate hikes and the strength of the dollar.

Robin Brooks, a senior fellow at the Brookings Institution and former chief economist at the Institute of International Finance, wrote in a report that lower oil prices could sharpen the focus on disinflationary pressure when June consumer price index data are released on July 14. That could strengthen the view that the Fed will not raise rates and that its next move may instead be a cut. If dollar strength fades, a key obstacle for Bitcoin could also ease. The dollar and Bitcoin are widely known to move inversely.

Caution remains, however. YCC Macro, a macro analysis account, wrote on X that a drop in gasoline prices alone would not allow the Fed to declare victory over inflation. As long as sticky inflation in the services sector persists, policymakers are more likely to keep rates higher for longer. The account added that markets may be overestimating the chances of aggressive rate cuts.