Bitcoin slides as July Fed hike bets pressure crypto markets

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Bitcoin slides as Fed hike bets

Highlights

Money markets now assign a 50% probability to a July Federal Reserve rate hike, up from 10% days earlier, pressuring crypto and bond markets.
Bitcoin drops over 2% in 24 hours to $62,380, major cryptocurrencies retreat, and the two-year U.S. Treasury yield hits 4.29%, its highest since early 2023.
Surging oil prices near $80 a barrel and rising inflation expectations are pushing investors to closely watch June CPI data and Fed Governor Warsh's upcoming testimony.

Rate expectations and market repricing

As reported by CoinDesk, money markets now assign roughly a 50% probability to a Federal Reserve rate increase in July, up from about 10% only days earlier, as traders react to remarks from Fed Governor Christopher Waller that officials may need to raise rates to contain price pressures.

That shift is reverberating across markets. Bitcoin trades near $62,380 after falling more than 2% in 24 hours, while Ether, XRP and other major cryptocurrencies also retreat, and the two-year U.S. Treasury yield rises to 4.29%, its highest level since early last year.

The more hawkish tone is also linked to rising geopolitical and energy risks. Escalating U.S.-Iran tensions and a sharp increase in oil prices are reviving inflation concerns, with West Texas Intermediate crude futures climbing to nearly $80 a barrel from $67 at the start of the month.

Inflation data and Fed signals in focus

Investors are now watching Tuesday's June consumer-price index release from the Labor Department for a clearer reading on inflation. Economists surveyed by Bloomberg expect headline CPI to come in below a 4% annual rate, with the report projected to show the first declines in both headline and core inflation since January, following May readings of 4.2% and 2.9%, respectively.

Even if the data match forecasts, markets may treat them as backward-looking because of the recent surge in oil prices. A stronger-than-expected inflation reading could intensify concerns that the Fed is preparing to tighten policy rather than stay on hold.

Attention then shifts to Warsh's congressional testimony, where investors will look for clues on the central bank's next steps. Analysts at ING say he may choose to stress subdued inflation expectations, while arguing that even if a rate increase is delivered, markets still see scope for subsequent policy reversals and deeper cuts later on.

In our earlier coverage of the jump in July Fed hike odds, we explained how the surge in oil prices tied to escalating U.S.–Iran tensions pushed traders to reprice the path for rates ahead of the July meeting. We also noted that while markets still leaned toward a pause, the growing energy-driven inflation risk was starting to spill beyond fuel costs, complicating the outlook for incoming CPI data and Fed guidance.

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