Bitcoin Poised to Snap Three-Week Winning Streak as Inflation Data Boosts Fed Rate Hike Odds

Bitcoin is on track to end a three-week winning streak, weighed down by macroeconomic pressures that have bolstered expectations for a more hawkish Federal Reserve. Despite a modest gain on Friday, the leading cryptocurrency was down more than 3% for the week, reflecting investor caution amid persistent inflation and rising geopolitical tensions.

Inflation Data Fuels Fed Hike Bets

Fresh government data was a key catalyst for the market's shift in sentiment. The U.S. Bureau of Labor Statistics reported that the core consumer price index (CPI), which excludes volatile food and energy costs, rose 0.3% in August, slightly ahead of the 0.2% consensus estimate. The headline CPI increased by 0.4% month-over-month, in line with expectations.

Following the report, traders significantly increased their bets on an upcoming interest rate increase. The probability of the Federal Reserve implementing a quarter-point rate hike at its next meeting surged to nearly 87%, up from 69% before the data was released, according to the CME FedWatch Tool. Higher interest rates typically increase the opportunity cost of holding non-yielding assets like cryptocurrencies, placing downward pressure on their prices.

Oil Prices and Geopolitical Risk

Adding to inflationary concerns has been a sharp rally in energy markets, with oil prices surging about 20% over the past two weeks amid renewed military conflict between the U.S. and Iran. While crude prices dipped on Friday following a Financial Times report of potential diplomatic talks to secure shipping lanes, the broader price increase has contributed to the hawkish outlook.

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Risk assets, including cryptocurrencies, saw some temporary relief from the Friday pullback in oil. Bitcoin traded up 0.3% to $77,397.9 in late trading, but the weekly trend remained negative.

Market Performance and Outlook

The broader cryptocurrency market showed mixed results for the week. While Bitcoin headed for a loss, Ether, the second-largest crypto, was up 3.4%. Other major altcoins were varied, with XRP shedding 3% and Cardano falling 3.5%, while BNB gained 0.7%.

Analysts noted that Bitcoin's ability to hold key technical levels could signal underlying resilience. "Bitcoin holding above $76,270 would suggest that underlying demand remains resilient despite uncertainty around the rate path," said Lewis Huang, an analyst at Bitget, in a note.