Bitcoin rebounds to near $79k after in-line inflation report

Bitcoin experienced a resurgence on Friday, buoyed by a rise in risk sentiment following a break in oil prices' winning streaks. However, the cryptocurrency's gains were halted as expectations of a Federal Reserve rate hike hike increased sharply. The largest digital currency rose by 0.3% to $77,397.9 by 17:18 ET (21:18 GMT), but it was down over 3% for the week, ending a three-week winning streak.

Equities and crypto benefitted from a fall in oil prices, with Brent crude futures breaking a five-day winning streak. The decline was triggered by reports of a Gulf foreign ministers' meeting with their Iranian counterpart to reach an agreement on managing commercial shipping through the Strait of Hormuz. Despite the loss, oil prices were poised for a significant two-week surge of approximately 20%, driven by increased military activity between the U.S. and Iran in the region.

Away from the Middle East, investors monitored the latest consumer price index (CPI) report. In the U.S., the headline and core CPI ticked up 0.4% month-over-month and 0.3% month-over-month in August, exceeding consensus estimates of 0.4% and 0.2%. On a year-over-year basis, headline CPI increased 3.4% in August, unchanged from July, while core CPI moderated to 2.4% from 2.5%.

Both figures aligned with expectations. The CPI data bolstered the likelihood of the Federal Open Market Committee (FOMC) raising rates by a quarter-point next week. The probability of such a move surged to nearly 87% on the CME FedWatch tool, up from about 69% before. Higher interest rate environments typically have a negative impact on speculative assets such as cryptocurrencies.

Prior to the August CPI, hawkish expectations had gained momentum, particularly after strong nonfarm payrolls last week and Thursday's Producer Price Index (PPI) report, which indicated rising headline inflation. The recent increase in oil prices further intensified inflationary concerns, leading to a decline in the U.S. bond market, especially in longer-term maturities.

The CPI report was considered the final piece tipping interest rate odds towards a hike. Analyst Lewis Huang of Bitget noted that Bitcoin holding above $76,270 indicated that underlying demand remained resilient despite uncertainty surrounding the rate path.