LONDON, ENGLAND - FEBRUARY 12: Wellcome Collection staff member Emily Pritchard poses on a new spiral staircase on February 12, 2015 in London, England. The staircase is part of a 17.5M GBP development of the whole exhibition spaces by Stirling Prize winning Architects Wilkinson Eyre. (Photo by Dan Kitwood/Getty Images)
Cryptocurrencies dropped along with the stock futures after data showed inflation in the U.S. rose more than expected in May, strengthening the case for rapid-fire interest rate hikes by the Federal Reserve (Fed).
Data published by the Labor Department at 08:30 EST showed the consumer price index, or the cost of living in the world's largest economy, rose by 1% from April, lifting the annualized inflation growth rate to 8.6%. Consensus estimates had expected the annualized figure to hold steady at 8.3%, with a jump in the monthly figure to 0.7% from 0.3%.
The core inflation, which strips out the volatile food and energy component, also bettered estimates, rising 0.6% from April, resulting in an annualized rate of 6.0%.
The above-consensus figures signaled a long, drawn-out inflation fight for the Fed. Hence, risk assets, including cryptocurrencies, ran into selling pressure following the data release.
Bitcoin, the top cryptocurrency by market value, fell by 1.5% to $29,600 and appeared set for a continued decline, with the daily chart indicating an ascending triangle breakdown.
Ether, the second-largest cryptocurrency, fell over 3% to $1,730. However, prices remained stuck in the three-week-long triangular consolidation. Other major losers were Algorand's ALGO coin, WAVES and Theta Fuel or TFuel, each down at least 5%, according to Forbes data.
In traditional markets, the futures tied to the S&P 500 slipped over 1%, while the dollar index, which gauges the greenback's strength against majors, rose 0.6% to top 104 for the first time since May 17.
Data from the CME FedWatch tool shows rates traders ramped up bets of aggressive Fed tightening, fully pricing in three 50 basis point rate hikes over June, July and September and lifted the year-end interest rate forecast to 3%. The benchmark interest rate currently stands between 0.75% to 1%.
The U.S. two-year Treasury yield, which is sensitive to interest rate expectations, rose to 2.96%, the highest since November 2018.
The Fed shifted the focus to inflation control late last year and has increased borrowing costs by 75 basis points since then. The central bank has also begun trimming its $9 trillion balance sheet to suck out liquidity from the system.
Growth-sensitive assets like stocks, industrial metals and emerging technologies like crypto are sensitive to changes in the fiat currency liquidity.
Bitcoin, for one, has more than halved since November and could suffer deeper declines in the near term, considering the latest inflation release.
In ether's case, a UTC close under $1,700 would confirm an ascending triangle breakdown, opening doors for a slide toward $1,420 - the high reached in January 2018.