Bitcoin Bulls Strengthened by Easing US Inflation Outlook

Bitcoin (BTC) surged nearly 7% in the week ending July 5, marking its strongest weekly performance since March, driven by a cooling U.S. inflation outlook. This rally stands out as a significant development, fundamentally reshaping market expectations for the Federal Reserve's (Fed) monetary policy.

The primary catalyst for this momentum in Bitcoin was the U.S. two-year inflation breakeven rate falling below the Fed's 2% inflation target for the first time since 2024. This signals that markets are pricing in inflation to drop below the Fed's target within two years, thereby reducing the likelihood of further interest rate hikes and potentially paving the way for future rate cuts. Additionally, retreating West Texas Intermediate (WTI) crude oil prices to pre-Iran conflict levels further contributed to deflationary pressures.

Another supporting factor was the weaker-than-expected U.S. jobs data released on July 2. The June Nonfarm Payrolls report showed a modest gain of 57,000 jobs, significantly below the 110,000 forecast, boosting hopes for earlier Fed rate cuts and leading to a weaker U.S. dollar. Bitcoin typically moves inversely to the U.S. dollar, meaning a weaker dollar tends to have a positive impact on the cryptocurrency's price.

These developments generated a wave of optimism across the digital asset market. Bitcoin rebounded from its lows, climbing to $62,000 on July 3 from $57,750 on July 2, and traded around $62,904 – $63,340 as of July 6. Short-term technical indicators suggest Bitcoin has reclaimed its 20 and 50-day exponential moving averages (EMAs), though it remains below the 100-day EMA. Moreover, spot Bitcoin exchange-traded funds (ETFs) recorded over $220 million in net inflows.

In the broader economic context, U.S. headline Consumer Price Index (CPI) inflation accelerated to 4.2% year-over-year in May 2026, with core CPI rising 2.9%, largely driven by higher energy prices. However, market expectations point to the June CPI data, due on July 14, being more constructive and potentially marking the peak inflation for the year. The Fed had held the federal funds rate steady at a target range of 3.50%-3.75% through the first half of 2026, following a series of rate cuts in late 2024 and 2025.

Analysts caution that inflation pressures, particularly in the services sector, may remain structurally high, suggesting the Fed could keep interest rates elevated for longer despite falling oil prices. Citigroup, in July 2026, downgraded its 12-month Bitcoin price target from $112,000 to $82,000, citing a structural breakdown in spot demand following record ETF outflows of $4.5 billion in June. Market participants will closely monitor the June CPI report, scheduled for release on July 14, as a critical inflection point for the Fed's future monetary policy decisions and Bitcoin's short-term trajectory.