PCE Inflation Relief Ignites Bitcoin Rally Past $85K as Fed Rate Hike Odds Plunge
US Core PCE inflation cooled to 3.0% year-over-year, beating expectations and driving market odds of an October Fed rate hike down from 72.5% to under 40%. Bitcoin swiftly breached $85,000 alongside a gold rally as dollar strength unwound. However, robust GDP growth and strong consumer spending mean upcoming labor market data could still alter the Fed's trajectory.
A cooler-than-expected US Personal Consumption Expenditures reading triggered an immediate repricing across macro assets, driving Bitcoin past $85,000 as rate-hike expectations collapsed. Core PCE rose 3.0% year-over-year against a 3.3% forecast, providing the Federal Reserve clear evidence of moderating price pressures ahead of its October decision.
The signal registered instantly in interest rate swaps and futures. CME FedWatch data showed probability for an October Fed rate hike plummeting from 72.5% down to under 40%. The resulting pullback in the US Dollar Index relieved immediate pressure on non-yielding liquidity sponges, lifting both crypto and precious metals.
Yet liquidity conditions remain contested behind the headlines. Q2 GDP expansion hit 2.2% against a 1.5% estimate, while real consumer spending posted its sharpest gain in over a year. Additionally, technical benchmark updates by the Bureau of Economic Analysis accounted for part of the cooling. If Friday's employment numbers deliver another tight reading, rate hawk sentiment could re-emerge quickly to cap risk-on momentum.