CPI Slowdown Boosts BTC, But Major Rally Unlikely

The U.S. Consumer Price Index (CPI) report for January, released on Wednesday, is expected to show a slowdown in inflation, which could benefit risk assets, including Bitcoin (BTC). However, a major rally in BTC seems unlikely, according to market analysts.

The U.S. Department of Labor will release the CPI report at 13:30 UTC. The report is expected to show a 0.3% month-over-month increase in living costs in January, a slowdown from December's 0.4% rise. The annualized data is expected to remain flat at 2.9% from December.

If the data comes in below expectations, especially with lower core inflation data, it could strengthen the market's expectation of further interest rate cuts by the Federal Reserve (Fed). This could lead to a decline in U.S. bond yields and a weaker U.S. dollar, thereby boosting demand for risk assets. According to CME's FedWatch tool, the market currently estimates a 54% probability of a Fed rate cut once this year or no cut at all.

While the Fed rate cut expectations may boost BTC, it is unlikely to be the sole catalyst for breaking out of its current consolidation range of $90,000 to $110,000. This is because forward-looking market indicators suggest that inflation may rise in the coming months, coupled with trade war concerns, implying that the Fed may have only a limited window to implement aggressive rate-cutting policies.