Bitcoin is volatile as August CPI report approaches

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Bitcoin price rose around 2% to $57,900 on Tuesday, but the rally paused ahead of the Consumer Price Index (CPI) data for August, according to data from CoinGecko.

The key update, scheduled for release at 8:30 a.m. ET, is expected to influence the Federal Open Market Committee's (FOMC) interest rate decision next week.

The August CPI report is expected to show a continued slowdown in inflation, with the annual rate falling from 2.9% to 2.5%. Consumer prices are expected to rise 0.2% month-on-month.

If inflation continues to decline toward the Federal Reserve's 2% target, it would be a positive sign that the Fed's actions are working as expected and that the economy could achieve a soft landing.

The weaker-than-expected labor market has also sparked discussions among Fed officials about the need for policy adjustment to support economic growth.

Several Federal Reserve officials, including Governor Chris Waller, have indicated that it may be time to adjust the target range for the federal funds rate, signaling that the Fed is prepared to ease monetary policy.

Investors are now confident that the central bank will cut interest rates at the next FOMC meeting, according to the latest data According to CME FedWatch, the focus is now more on the size of the rate cut, with odds split 67/33 between a 50 basis point cut and a 25 basis point cut.

However, if inflation rises unexpectedly, financial markets, including the cryptocurrency market, could be caught off guard and cuts may not be justified.

At the time of reporting, most crypto assets are trading in the red. Both Bitcoin and Ethereum registered a 1% drop over the past 24 hours and are currently hovering around $56,500 and $2,300, respectively, according to data from CoinGecko.

As the CPI report approaches, altcoins have also started to pull back. Among the top 100 crypto assets by market cap, Aave (AAVE) led the gains with a 12% increase over the past 24 hours, followed by Internet Computer (ICP) with 10%, according to data from CoinGecko.

During the same period, Dogwifhat (WIF) saw the biggest drop, falling almost 8%, while Arweave (AR) and Starknet (STRK) also lost ground.

The overall cryptocurrency market capitalization has declined by 1.6% over the past 24 hours and now stands at $2.08 trillion.

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