Cryptocurrencies drop as markets react to US inflation

Crypto markets edged higher early on Wednesday, as cooling US inflation helped to scale back improved risk sentiment. Cryptocurrencies lost strength later on Wednesday, however, as markets began to digest the news.

US PPI data on Wednesday fell below expectations, reducing Fed rate hike expectations. PPI declined by 0.5% in December, versus estimates of a 0.1% drop. A soft inflation print was expected however and had largely been priced in by markets. Headline inflation also dropped to 6.5% year-on-year in December from 7.1% in November. US inflation seems to be cooling, which may give the Federal Reserve some leeway toward scaling back its interest rate increases.

Even though inflation rates remain high, cooling price pressures have reduced rate hike expectations, providing support for riskier assets. The Fed and other central banks are starting to scale back their aggressive rate hiking, raising hopes of a reversal in cryptocurrencies’ downfall. 

Bitcoin price briefly rose in early trading then dropped to $20,700. If the BTC price declines, support can be found near $17,930, while resistance may be encountered at $22,700. 

Ethereum price also rose early on Wednesday, then plummeted to $1,510. If Ethereum's price declines, it may encounter support near $1,370, while if it increases, resistance may be encountered near $1,670.

BTC/USD 1h Chart

ETH/USD 1h Chart

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Written by:
Myrsini Giannouli

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