Bitcoin, Ethereum Hold Ground Despite Rising Inflation in August

Cryptocurrency prices traded in a neutral range on Wednesday after a closely watched inflation index showed U.S. inflation rose last month.

The Bureau of Labor Statistics (BLS) reported Wednesday that the consumer price index (CPI) rose 3.7% in the 12 months through early August, slightly ahead of analysts' forecasts, which had expected a 3.6% rise.

The index rose 0.6% on a monthly basis in August after rising 0.2% in July and June. The relatively strong gain was driven by rising gasoline prices, the BLS reported, which accounted for more than half of the index's gain.

According to CoinGecko, Bitcoin was trading at around $26,100 after the report was released, although it remained unchanged over the past day. Over the same period, Ethereum lost 0.5% to around $1,600, while altcoins such as Cardano and Polkadot also fell slightly in price.

Wednesday's report should be one of several factors, also taking into account the strength of the US labor market and the latest Personal Consumption Index (PCI) data, which is being weighted by the Federal Reserve ahead of its next interest rate announcement on September 20.

The Fed has strengthened its monetary policy in response to inflation, which reached 9.1% last June, its biggest annual increase since 1981. High-interest rates negatively impact the economy, making it difficult for businesses and consumers to borrow.

In addition to holding back economic growth, higher interest rates have weighed on cryptocurrencies and other so-called risk assets such as stocks as assets such as U.S. Treasuries become increasingly attractive to investors.

Although inflation has fallen significantly from the record high reached last June, it remains above the Fed's target of 2% per year.

In July, the US central bank revised its benchmark interest rate from 5.25% to 5.5%, hitting a 22-year high after a jump in June. When the Fed decided not to raise interest rates in June, it was the first time the Fed had faltered in 18 months.

While Wednesday's CPI report showed inflation accelerating from last month, so-called core inflation, which does not take into account volatile food and energy prices, is trending in the right direction, said James, head of research at CoinShares. Butterfill in an interview with Decrypt.

Core inflation fell to 4.3% in August, a significant fall from 4.7% in the twelve months to July. As the Fed weighs another potential rate hike, Butterfill reiterated that August inflation data is unlikely to influence the decision. “This report is not enough to justify a rate hike at the next Fed meeting,” he said, adding that Bitcoin prices changed little in response to the news.

Traders on Wednesday assessed a 91% chance the Fed will leave rates unchanged after its meeting later this month, with a 5% chance of a rate cut next January, according to CME Group's FedWatch Tool.

Cryptocurrency prices fell in August after minutes from the Federal Reserve's latest interest rate meeting were released. Concerns about interest rate hikes put traders on pause, along with confirmation that the Fed "remains very alert to inflation risks."