The Bitcoin price appears to be on the cusp of a major rally ahead of the important personal consumption expenditure (PCE) data that is scheduled for Friday. The BTC is trading at $40,065, which is 7.8% above the intraday low of $37,205. It has a market capitalization of more than $750 billion. 

Bitcoin and inflation

The Bitcoin price is rising as traders wait for the latest PCE data that will come out on Friday. Economists polled by Reuters expect the data to show that core PCE rose from 1.8% in March to 2.9% in April on a year-on-year basis. They see it rising from 0.4% to 0.6% on a month-on-month basis. 

These numbers are important because the Federal Reserve pays a close attention to them as a gauge of inflation. And inflation is one of the bank’s core mandate. In theory, when inflation rises above its target of 2.0%, the bank usually responds by raising interest rates, and vice versa.

Recent numbers have signaled that inflation is rising. For example, two weeks ago, data by the government revealed that consumer prices rose by 4.2% in April. In the same period, producer prices rose by 6.2%, year-on-year. These numbers were all above the Fed’s target of 2.0%.

Some analysts believe that the real figure is much higher since commodity prices have all surged. For example, data released this week showed that US home prices rose at the fastest pace in 15 years in April.

These numbers are important for Bitcoin price because of their impact on interest rates. If inflation keeps rising while the labour market is tightening, it is a sign that the Federal Reserve will start tightening earlier than expected. If this happens, it means that the prices of riskier assets like Bitcoin and technology stocks will be affected. 

There is a possibility that the Fed will turn hawkish in the coming months. Its minutes showed that some members started to talk about tapering of asset purchases. Further, Central Banks like the Reserve Bank of New Zealand (RBNZ), Bank of England, and Norges Bank have all hinted that they will tighten soon. This could put more pressure on the Federal Reserve.

Bitcoin Price Prediction

Bitcoin price
Bitcoin price chart

A look at the four-hour chart shows that a bullish formation is happening. For one, the Bitcoin price seems to be forming an inverted head and shoulders pattern. This is usually a bullish sign. At the same time, the currency has managed to move above the 23.6% Fibonacci retracement level. It has alos jumped above the 25-day and 15-day exponential moving averages (EMA). 

Therefore, in my view, after retesting the $40,000 level today, it means that there is strong demand for the coins. Thus, it will likely bounce back and possibly test the 50% retracement level at $47,527, which is about 20% above the current level.

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