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Why Bitcoin Traders Need to Pay Attention to UK Double-Digit Inflation?

According to a government report released on Wednesday, the cost of living in the United Kingdom increased by 10.1% in July. This is the first major country to experience double-digit inflation since COVID-19, and it is another another indication that pricing pressures are escalating globally.
Because inflation has been a central thesis in the bitcoin (BTC) market for the last several years, the news may give economic talks among crypto specialists greater urgency.
According to John Silvia, the founder of Dynamic Economic Strategy and a former top economist for Wells Fargo, higher inflation in the U.K. might increase pricing pressures overseas, particularly in the U.S.
He said that there was a conflict between Bank of England and Federal Reserve policy expectations.
This year, the Bank of England has hiked interest rates six times. The 50 basis point gain in August was the most since 1995. As the bank’s own projections indicate that inflation will reach 13% later this year, the U.K. central bank may increase interest rates more quickly.
Faster rate increases by the BOE may boost interest in fixed-income securities in the U.K., which would therefore raise demand for the pound, boosting its value on foreign currency markets.
The U.S. currency will also likely be weaker in comparison, which might lead to American consumers paying more for imports overall and raising domestic inflation. Risky asset markets would undoubtedly experience pressure if the Fed was compelled to react with additional hefty rate rises.
Bitcoin traders have been closely monitoring the dynamics of inflation since at least early 2020 since crypto assets are one of the riskiest asset classes.
As a result of its preprogrammed speed of issuance under the initial blockchain design, Bitcoin was seen as a hedge against inflation. In reality, however, genuine reports of inflation have forced central banks to reduce or stop money creation and tighten monetary policy in order to prevent economies from overheating. As a result, the cost of risky assets such as stocks and cryptocurrencies has fallen.
The British pound gained value, according to Silvia, when the U.S. consumer price index reported a little decline. The pound may increase in value somewhat as a result of the most recent U.K. inflation, particularly if the Federal Reserve only increases the funds rate by 50 basis points in September. (One basis point, or 0.01%, is used.)
Currently, the UK has a 1.75% interest rate, but traders anticipate it will grow to over 2% by year’s end and over 2.6% by the end of 2023.
The federal funds rate in the US is now 2.25 percent, but markets have already begun pricing in further gradual rate increases in the coming months. Markets may get additional clarification on that in the Federal Open Market Committee meeting minutes that will be released on Wednesday at 2 p.m. ET.
The new CPI shows evidence of a reduction in the pace of growing prices, and although inflation in the UK is still on the increase, the U.S. economy has received some respite. The issue is whether price hikes are indeed slowing down or whether the most recent number was just a brief respite. Another scenario is that prices will remain high at their present level.
According to Brian Coulton, chief economist at Fitch Ratings, “the increase in services inflation this year is a clear evidence of inflation widening and becoming self-reinforcing, and it’s been a trend shared in both economies in the setting of tight labor markets.”
This portion of the CPI basket, which the BOE probably has the greatest influence over, is substantially too high and continuing to rise, he added. “The most recent CPI report in the US showed a similar trend.”

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