Bitcoin surged past the $113,000 mark on Wednesday as softer-than-expected US inflation data buoyed investor sentiment and boosted bets on more aggressive monetary easing from the Federal Reserve. The Producer Price Index (PPI) for August came in weaker than forecasts, fuelling speculation that the Fed could deliver a larger rate cut at its policy meeting next week.

The news sparked a rally across the crypto complex, though market analysts warned that despite the bullish momentum, caution remains warranted given bitcoin’s inconsistent response to recent macroeconomic developments.

PPI Comes in Below Forecasts

The PPI, which tracks inflation at the wholesale level, slipped by 0.1% in August compared with expectations for a 0.3% rise and July’s sharp 0.9% increase. On an annual basis, PPI grew by 2.6%, cooling from the previous 3.1% and significantly under the 3.3% projected by analysts.

Core PPI, which excludes the more volatile food and energy components, also fell 0.1% in August. Economists had expected a 0.3% rise after July’s 0.7% jump. Year-on-year, the core measure increased by just 2.8%, softer than both July’s 3.4% and the forecast 3.5%.

This weaker inflation print offered a welcome contrast to July’s unexpectedly strong PPI data, which reignited fears of re-inflation even as the US labour market showed mounting signs of weakness. Market participants are now awaiting Thursday’s release of the Consumer Price Index (CPI), widely regarded as a more influential gauge of inflation ahead of the Fed’s policy decision.

Crypto Market Response

Reaction across the cryptocurrency market was swift. Bitcoin (BTC) climbed more than 1% in the past 24 hours to reach $113,700 at press time. Ether (ETH) mirrored the move, while Solana’s SOL (SOL) extended its recent streak of outperformance with a 3.3% rise to $224.

“That’s exactly the PPI data we should cheer for, assuming that it will help to suppress CPI inflation, end the recent streak of re-inflation and allow the Fed to focus explicitly on recent labour market weakness,” said Caleb Franzen, founder of Cubic Analytics, in a post on X (formerly Twitter).

Crypto traders view looser monetary policy as supportive for risk assets. Lower borrowing costs typically push investors toward higher-yielding assets, with bitcoin and other cryptocurrencies often benefiting from an environment of increased liquidity.

Fed Expectations Shift

Over the past month, Federal Reserve Chair Jerome Powell has shifted from a hawkish to a more dovish tone amid signs of economic slowdown. With weak economic reports piling up, markets have increasingly priced in a policy pivot.

While consensus still points to a 25-basis-point rate cut at the September meeting, bets on a larger 50-basis-point move have ticked higher. According to the CME FedWatch tool, the probability of such a cut rose to 10% following the PPI release, compared to 7% before and virtually zero just a week ago.

The Fed’s decision will be closely scrutinised by both traditional and digital asset markets. Investors are looking for confirmation that policymakers will prioritise supporting growth and stabilising the labour market over fighting inflation, particularly if Thursday’s CPI reading aligns with the softer PPI data.

Reasons for Caution

Despite the positive market reaction, analysts urge caution. Bitcoin’s price action has been notably erratic in recent weeks. Gains triggered by dovish remarks from Powell or weak economic data have often faded just as quickly, leaving the cryptocurrency struggling to sustain upward momentum.

Gold, by contrast, has behaved more predictably, climbing steadily to record highs with each fresh signal of potential rate cuts. Bitcoin, once touted as “digital gold,” has lagged in delivering the kind of consistent safe-haven performance many investors expected in such a macroeconomic climate.

This divergence underscores the uncertainty facing crypto traders. While rate cuts are broadly seen as supportive, questions remain about bitcoin’s resilience in an environment of economic fragility and whether it can decisively break out of its recent choppy trading range.

Outlook

The immediate focus for traders is Thursday’s CPI release, which will provide another crucial data point ahead of the Fed’s meeting next week. A softer CPI reading could strengthen the case for a bolder move from the central bank, potentially fuelling further gains in crypto markets.

Still, bitcoin bulls face a balancing act between optimism on monetary policy and the reality of volatile price action. Until BTC can prove its ability to sustain rallies, market participants are likely to remain cautious despite the bullish backdrop provided by weakening inflation and shifting Fed expectations.

For now, the softer PPI has breathed fresh life into the crypto market, but whether bitcoin can build on its move above $113,000 remains an open question.