US inflation impacts bitcoin and the dollar

While uncertainty remains high regarding interest rate decisions in the US and Europe before the ECB’s meeting this week and the Federal Reserve’s FOMC next week, markets reacted strongly to the US inflation figures release which led to a larger probability of a 25 basis points interest rate increase in the US.

The successive US bank failures of the last few days shook markets and have steered attention toward a potential financial crisis. However, the initiatives taken by the US and UK governments have calmed investors to a certain extent and the release of inflation data has returned the focus to the primary objective of the Federal Reserve of fighting inflation.

Stocks have returned to the upside and could see some gains prior to the start of interest rate decisions. Banks could also see a rebound after the strong decreases of the last few days if no new incident emerges. The financing solutions put in place by the US authorities could help reduce such risks.

However, confidence in the banking sector has been eroding among some investors who could find themselves moving toward alternative assets like bitcoin, which has strongly benefitted during this crisis. Cryptocurrencies in general could see positive performances while interest rate expectations softened compared to last week.

In this regard, the changing expectations regarding interest rate hikes in the US and Europe could continue impacting the EURUSD pair as uncertainty could remain until both central banks announce their respective decisions. The dollar could sustain gains against other currencies like the Japanese yen which could see its looser monetary policy maintained.