Bitcoin in Shock! Inflation Falls, but the Fed Sinks Its Price

Despite Trump's tariff truce and positive economic data, the shadow of the Federal Reserve sows terror in the crypto markets. Is this the end of the bullish rally?

The price of Bitcoin (BTC) experienced a sudden downward correction of 3.85%, trading at $79,436 at the time of this report (1:46 PM UTC-4). This drop surprised investors, especially after the release of encouraging macroeconomic data in the United States, where inflation plummeted to 2.8%, its lowest level since April 2021. Despite a slight increase in unemployment claims, which reached 223,000, exceeding the previous reading of 219,000 but in line with expectations, the resilience of the labor market was not enough to boost the digital asset. The Federal Reserve's (Fed) continued caution regarding inflation appears to be the main drag on Bitcoin's price.

From a technical perspective, the Bitcoin price remains bearish, trading below the 50- and 200-period moving averages. / TradingView

The Fed, the killjoy of the crypto rally

The brief euphoria generated by the tariff pause announced by former President Donald Trump failed to sustain Bitcoin's bullish momentum. The main reason lies in the Federal Reserve's inflexible stance on inflation. Key members of the Fed recently expressed concern about the potential inflationary surge that tariffs could generate.

Kansas City Fed President Jeff Schmid warned of a "marked increase in upside risks to inflation" and a "greater downside risk to the outlook for jobs and growth." Schmid emphasized that the Fed is not willing to risk its credibility in the fight against inflation by prematurely cutting interest rates, especially if this could trigger a further spike in prices.

Along similar lines, Dallas Fed President Lorie Logan emphasized the importance of preventing any tariff-induced price increases from turning into persistent inflation in order to sustainably achieve the central bank's dual-mandate objectives.

These joint statements signal that the Federal Reserve remains vigilant about tariff policies and their potential impact on inflation, making this a crucial new factor in its future interest rate decisions.

High Rates, Low Crypto: The Fear Equation

As long as the Fed keeps interest rates high, Bitcoin and the broader cryptocurrency market could remain under downward pressure. A high-rate environment traditionally strengthens the safe-haven US dollar and tends to hurt risky assets, a category in which many investors include Bitcoin, given its historical correlation with the Russell 2000 Index.

The federal funds futures market reflects this uncertainty. Currently, the probability that the Fed will keep interest rates unchanged at 4.50% at its May 7, 2025, meeting stands at 69.5%, down from 78.1% the previous week. However, the market still anticipates a first rate cut of 25 basis points for the June 18 meeting, with a current probability of 60.7%, according to CME Group data.

Dollar Loses Ground Despite Crypto Gloom

Interestingly, despite Bitcoin's decline, the US dollar also showed weakness, falling to six-month lows with the DXY index trading at 100.87 points. The dollar entered a downtrend and could soon test the key support at 100.19 points.

Technical Analysis: Key Support in Danger?

From a technical perspective, the Bitcoin price remains bearish, trading below the 50- and 200-period moving averages. However, it found significant horizontal support at $76,600, a level that has resisted selling pressure since March 11.

The loss of this support could intensify downward pressure, with the next support level located near the $66,700 area. On the other hand, the 200-period exponential moving average, located around $85,000, has acted as key resistance, rejecting the price twice over the past month.

Importantly, each time the Bitcoin price has tested the $76,600 area, trading volumes have increased, suggesting that this support is gaining relevance and a bottom could be forming in this area.

The day left a bittersweet aftertaste for Bitcoin investors. Despite macroeconomic tailwinds, the Federal Reserve's caution and concerns about the inflationary impact of Trump's tariffs are putting considerable pressure on the price of the leading cryptocurrency. The battle to maintainSupport at $76,600 will be crucial in determining Bitcoin's short-term direction in a market increasingly sensitive to US monetary policy signals.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Cryptocurrency trading is highly volatile and carries significant risks, including the total loss of your invested capital. Consult a financial advisor before making any investment decisions.