Falling Inflation Expectations Support Bitcoin's Best Weekly Performance Since March
0xBroomberg
Bitcoin rose nearly 7% to $62,737 in the week ending July 5, its best weekly performance since March — driven not by crypto-native catalysts but by a broad retreat in U.S. inflation expectations that undercuts the entire case for further rate hikes.
How far have inflation expectations fallen?
The U.S. two-year breakeven inflation rate — the market's pricing of inflation over the next two years — has dropped below 2% for the first time since 2024.
This means → markets now expect inflation to run below the Fed's 2% target over that horizon, removing the data foundation for further hikes.
WTI crude has also retreated to levels last seen before the Iran tensions erupted in February, easing pressure on the commodity input end of the inflation pipeline.
Why does falling oil help Bitcoin?
Robin Brooks, senior fellow at the Brookings Institution, argues that when June CPI lands on July 14, the deflationary shock from lower oil prices will remind everyone: the Fed will not hike — its next move, if any, will be a cut.
In plain terms = oil falls → headline CPI softens → rate-cut bets rise → the dollar weakens → Bitcoin faces less headwind.
Bitcoin and the dollar index (DXY) are historically negatively correlated. Some observers note that dollar-long positioning is overcrowded; a rapid unwind would pressure the dollar further.
The bear case — could sticky services inflation spoil the party?
YCC Macro warns: the Fed cannot declare victory on the back of falling gasoline prices alone.
This means → even if headline CPI keeps easing, sticky services inflation could justify holding rates higher for longer.
The firm adds that aggressive easing bets may underestimate the persistence of core inflation.
July 14 CPI — will the deflation shock deliver, or will services stickiness kill rate-cut hopes?
BULL
Oil has already fallen
WTI is back to pre-Iran-tensions levels; headline CPI pressure is clearly downward.
Breakeven has cracked
Two-year breakeven below 2% — the rate-hike case loses its footing.
BEAR
Services inflation stays sticky
Core inflation hasn't softened in tandem; the Fed may stay on hold.
Markets may be front-running
Aggressive easing bets underestimate how persistent core inflation can be.
In plain terms = the deflation signal from oil and commodities is loud and clear, but the services side hasn't budged — July 14 CPI data is the referee's whistle.
What to watch next?
July 14: the U.S. releases June CPI — the nearest trigger point for testing both theses.
If headline CPI undershoots expectations, dollar-long unwinds could accelerate and Bitcoin's upside resistance weakens further.
If core CPI (excluding food and energy) stays firm, rate-cut expectations get repriced lower and the current rally faces pullback pressure.
Content is for reference only, not financial advice.