Cryptocurrency Under Pressure as Rate Hike Expectations Remain — Market Talk

1106 ET - Cryptocurrencies are under pressure as markets are expecting at least one Fed rate hike this year. "Markets continue to price at least one rate hike before the end of the year and short dated real yields remain elevated," says Stephen Coltman of 21shares in a note. Coltman points to any slowdown in AI business as a potential point where rate hike expectations may fade in lieu of cuts, which would in turn benefit cryptocurrencies and other assets. Bitcoin is down 0.3%, while ethereum falls 0.1%, XRP is down 0.4%, solana is flat, and dogecoin is down 0.2%. Zcash, which has been charging back toward the $600 mark, is down 3.5% today. ([email protected])1050 ET - Bitcoin falls 0.2% to around $64,400 as a rally that pushed prices back over $65,000 last week appears to falter. $65k is seen as a major resistance marker for bitcoin, says Naeem Aslam of Zaye Capital Markets in a note. He attributes the cooling of the push higher to "limited liquidity and broader risk-off positioning," but says that bitcoin managing to maintain a price level above $65k in the near-future could signal a new leg-up for the cryptocurrency. Ethereum is flat around $1,866, XRP is down 0.3% to $1.09, and solana is up 0.3% to $76.28. ([email protected])1046 ET - The U.K.'s high spending on the welfare bill could continue to drive up inflation and keep interest rates high, Eurizon SLJ Capital CEO Stephen Li Jen says in a note. New U.K. Prime Minister Andy Burnham faces the challenge of controlling the country's high cost of living, Jen says. Investors price in a total of 40 basis points of interest-rate rises by the Bank of England in 2026 as inflation concerns stay high, LSEG data show. ([email protected])1039 ET - The dollar has failed to benefit from higher oil prices in July as markets focus on interest-rate differentials, Standard Chartered's Steve Englander says in a note. Since the resumption of U.S.-Iran strikes, the dollar has dropped. If the market expects the Federal Reserve to be less reactive to higher oil prices on the assumption of little or temporary inflation impact, the dollar could fall further in the near term, he says. Standard Chartered still expects dollar strength over the medium term. "However, we need to see either a clearer cyclical rebound in the U.S. economy or a more definitive upward move in equilibrium real [inflation-adjusted] interest rates before dollar strength emerges."The DXY dollar index rises 0.2% to 100.95.([email protected])1032 ET - The Bank of Canada might have to consider rate increases later this year should the military conflict in the Mideastbecome a prolonged affair, says Ottawa-based Signal49. The research group says it reckons the BOC will remain on hold in September, given a slowdown in price pressures as suggested in the June CPI report. "With prospects for an enduring peace agreement highly uncertain and oil prices trending higher since early July, the risks to the inflation outlook remain tilted to the upside," Signal49 says, in laying out its case for a possible late-year rate hike. ([email protected]; @paulvieira)0959 ET - The Fed is likely to stay on hold at its July meeting, according to CME FedWatch. Markets are pricing in an 85.6% chance of leaving interest rates unchanged. Some Fed officials last week cautioned that inflation poses a bigger risk to the central bank's dual mandate. Still, by December, markets are pricing in a 41.8% chance of a hike. "The real discussion is whether the Fed will start a proper hiking cycle, which is typically delivered through at least 3 hikes, or not hiking at all," BofA Securities says.([email protected])0959 ET - Canada's inflation report for June points to limited evidence of a pass-through of higher energy costs to goods such as food, says Ali Jaffery, chief economist at KPMG Canada. The June report indicates inflation slowed in June to 2.8% from 3.2% in prior month. Jaffery says economic literature suggests the pass-through could take a year or more to peak, but the slow start is encouraging. He says the worries about good prices accelerating due to the combination of higher energy prices and US tariffs are not being borne out. He adds there was "considerable softness" in the CPI basket excluding travel services, which rose in June due to the World Cup games held in Toronto and Vancouver. ([email protected], @paulvieira)0951 ET - Higher energy and food prices are likely to keep total inflation in Canada near 3% for the remainder of the year, says Michael Davenport from Oxford Economics. The end of the US-Iran ceasefire and the resumption of military attacks in the Mideast poses a significant risk to Canada's CPI outlook, Davenport adds. Offsetting this risk, however, is the amount of excess slack in the economy and continued easing in shelter inflation, which Davenport contends should keep core CPI at bay and the Bank of Canada on hold. ([email protected]; @paulvieira)0947 ET - Scads of spare capacity in the Canadian economy are keeping inflationary pressures in check, says Benjamin Reitzes, economist at BMO Capital Markets. Headline inflation slowed to 2.8% in June, or above the central bank's target for 2% inflation. Reitzes notes the Bank of Canada's two preferred gauges for core prices both fell below 2% for the first time since August, 2020. Upside inflation risk remains, as evident by the runup in gas prices after the US and Iran resumed military attacks. "But it's clear that the output gap is weighing heavily on underlying inflation," Reitzes says. "This will keep the BOC comfortably on the sidelines." ([email protected]; @paulvieira)0944 ET - The readings on closely-watched gauges of Canadian core prices suggests rate increases from the Bank of Canada "remain a long way off," says Bradley Saunders from Capital Economics. The average of the BOC's preferred CPI-trim and CPI-median measures, which strip out volatile items, rose by a meager 0.07% in June. Saunders says this knocked the 3-month annualized rate down to 1.6%, and pulled the annual core rate down below 2%--the first time this has happened in five years. The BOC sets rate policy to achieve and maintain 2% inflation. The yield on Canada 2-year bonds fell slightly after release of the CPI data. ([email protected]; @paulvieira)0943 ET - The Bank of England could slow its gilt sales, also referred to as quantitative tightening, in September, HSBC Global Investment Research economists say in a note. The BOE is expected to provide an update on its assessment of the impact of the quantitative tightening program on gilt yields during its policy meeting on July 30, the economists say. If the assessment shows the program is having a notable impact, the BOE could slow the pace of sales, they say. ([email protected])0938 ET - Canada's total inflation decelerated to 2.8% in June, due mostly to lower gasoline prices following a pact in June between the US and Iran, says Andrew Grantham, economist at CIBC Capital Markets. Gas prices, however, have accelerated amid a renewal of military strikes in the Middle East. Grantham says prices rose 0.3% on a seasonally-adjusted basis when food and energy are excluded. He attributes this to temporary travel-related cost increases related to the World Cup matches in Toronto and Vancouver. The Bank of Canada's preferred measures of core inflation decelerated in June, and Grantham says this reinforces CIBC's call for the BOC to remain on the sidelines through 2026. ([email protected]; @paulvieira)