In the second week of July 2026, two inflation reports released by the U.S. Bureau of Labor Statistics prompted global financial markets to recalibrate policy expectations. The Consumer Price Index (CPI) for June fell 0.4% month-over-month, marking the largest single-month decline since April 2020. Shortly after, the Producer Price Index (PPI) for June dropped 0.3% month-over-month, also the biggest monthly decrease since April 2020. Both inflation indicators fell more sharply than anticipated, causing the probability of a Federal Reserve rate hike in July to plummet from 41.7% before the data release to just 15.5%. As of July 16, Bitcoin was quoted at $64,586.1, rebounding more than 8% from its two-week low of $59,660. Ethereum climbed nearly 20% from its low of $1,601. This macro-driven recovery offers a clear window into the transmission mechanism between crypto assets and inflation expectations.
What Does the Unexpected 0.3% Drop in June PPI Mean?
The Producer Price Index (PPI) is considered a leading indicator for inflation, often signaling the direction of CPI in the coming months. In June, the U.S. final demand PPI fell 0.3% month-over-month, significantly below market expectations of flat growth. Year-over-year, the increase narrowed to 5.5%, down from 6.0% in May. Structurally, end-product PPI dropped 1.4% month-over-month—the largest decline since July 2022—with the energy component down 6.4% and gasoline prices plunging 12% in a single month. The sharp drop in energy prices was the main driver behind the PPI’s unexpected decline.
However, the data reveals notable internal divergence. Excluding food, energy, and trade services, core final demand PPI edged up 0.1% month-over-month, with a stable 12-month year-over-year increase of 5.1%. End-service PPI rose 0.2% month-over-month, and retail fuel margins surged 13% in a single month. This indicates that upstream energy cost reductions have not fully passed through to downstream services, and inflation remains "sticky." Over a longer horizon, the entire industrial chain still shows elevated year-over-year increases—primary raw materials at 11.0%, secondary manufacturing at 9.8%, tertiary support at 6.8%, and quaternary end-products at 6.5%. The short-term PPI decline mainly reflects temporary energy price fluctuations, not a fundamental easing of upstream cost pressures.
How Consecutive Declines in CPI and PPI Are Changing the Market’s Fed Policy Pricing Logic
The simultaneous weakening of CPI and PPI has rapidly reshaped market expectations for the Fed’s policy path. June’s CPI fell 0.4% month-over-month and rose 3.5% year-over-year, below the expected 3.8%. Core CPI dropped to 2.6% year-over-year, under the anticipated 2.8%. Energy prices were the biggest drag, lowering the month-over-month CPI by 0.43 percentage points.
Following the data release, the CME FedWatch tool showed the probability of a 25-basis-point Fed rate hike in July dropped from 41.7% to 15.5%. The 2-year U.S. Treasury yield fell over 7 basis points in a single day to 4.185%, while the 10-year yield declined to 4.583%. The U.S. Dollar Index retreated to around 100.5. Market pricing quickly shifted from "imminent rate hike" to "hold steady" as the baseline scenario.
However, this does not mean a rate-cut cycle is imminent. Fed Chair Walsh emphasized during congressional testimony that a single month of positive data does not signal the completion of the anti-inflation mission, and policymakers remain "zero-tolerance" toward persistent high inflation. The stickiness of core service prices, structurally high transportation costs, and renewed Middle East tensions driving energy price uncertainty suggest that this respite may only be temporary.
From Plunging Rate Hike Expectations to Risk Appetite Recovery: How Macro Sentiment Transmits to Crypto Assets
Crypto assets, as high-beta risk assets, exhibited pronounced sensitivity to U.S. dollar liquidity and policy expectations during this data release cycle. With inflation data broadly weakening, concerns about further Fed tightening receded sharply, and risk appetite recovered. Bitcoin rebounded first after the July 14 CPI release, and after the July 15 PPI confirmed the cooling trend, Bitcoin broke above $65,500 intraday, hitting a three-week high not seen since June 22.
The transmission chain is clear: lower rate hike expectations → falling Treasury yields → weaker dollar → higher valuations for dollar-denominated risk assets. As of July 16, Bitcoin was quoted at $64,586.1. Total crypto market capitalization surpassed $2.3 trillion. All three major U.S. stock indices rose for the second consecutive day, with the S&P 500 nearing a one-month high. The synchronized rebound in risk assets shows that the market is repricing the "slower policy tightening path" scenario, rather than reacting to a simple event-driven impulse.
Why Bitcoin and Ethereum Are Showing Divergent Performance in This Rally
While both Bitcoin and Ethereum benefited from improved macro sentiment, their rebound magnitude and drivers differ significantly. Bitcoin rebounded over 8% from its two-week low of $59,660, while Ethereum surged nearly 20% from its low of $1,601. Ethereum’s resilience is notably stronger.
This divergence can be understood from several angles. First, Ethereum experienced a steeper decline earlier, falling sharply from its 2025 highs in the $2,400–$2,500 range down to $1,500–$1,600, creating more room for a technical recovery. Second, as of July 16, Ethereum had firmly reclaimed the $1,900 level, and the daily MACD formed a potential bullish crossover below the zero line—its first daily-level strengthening signal since late June. Third, the market holds independent expectations for institutional adoption within the Ethereum ecosystem, separate from macro factors.
However, both face constraints in trading volume. After Bitcoin broke above $65,000, its upward momentum slowed, and Ethereum’s trading volume continued to shrink during this rally. This suggests the current rebound is more of a "relief rally" than a trend reversal.
Can Cooling Upstream Inflation Persist? Structural Risks Hidden Behind Energy Prices
The broad softening of June inflation data is largely attributed to the sharp drop in energy prices. The energy index fell 5.7% month-over-month in June, with gasoline prices down 9.7%. But energy price movements are highly uncertain and cyclical.
Geopolitics is the biggest variable. As U.S.-Iran tensions escalate and the U.S. announces renewed maritime blockades on Iran, international crude oil futures surged over 9% at the July 13 close, marking the largest single-day gain since May 2020. If Middle East tensions persist, oil prices could rebound quickly, reversing the current cooling inflation trend.
Additionally, structural stickiness in core inflation cannot be ignored. Housing prices are still rising 3.3% year-over-year; core PPI remains elevated at 5.1%; and freight rates stay high due to a shortage of truck drivers. These factors mean that even if energy prices continue to decline, the slope of core inflation’s retreat may be limited. The probability of the Fed holding rates steady through year-end remains high, and the onset of a rate-cut cycle requires further data confirmation.
If the Inflation Trend Is Confirmed to Reverse, How Will Crypto Asset Pricing Logic Be Reshaped?
Current market pricing already reflects the "no rate hike in July" scenario, but the more critical question is: If inflation data continues to cool over the coming months, how will the market price the longer-term policy path?
Historically, improved U.S. dollar liquidity expectations have provided structural tailwinds for crypto assets. The fading of rate hike expectations lowers the opportunity cost of holding non-yielding assets like Bitcoin, while a weaker dollar directly boosts the valuation of dollar-denominated assets. If the market begins pricing in a rate-cut cycle for late 2026 or early 2027, crypto assets could see a more sustained recovery in valuations.
However, this scenario is subject to multiple prerequisites. First, inflation data must consistently confirm the cooling trend in the coming months—any reversal in a single month could quickly shift risk appetite. Second, Fed Chair Walsh has stated that interest rate tools remain on the table, and policymakers’ resolve to fight inflation has not wavered due to one month’s data. Third, $67,200 is viewed as a key resistance level for Bitcoin; failure to break through could lead to continued consolidation.
Therefore, the more reasonable interpretation is to view this rally as a "revision of expectations" rather than a "trend establishment." The core market dilemma remains: Is the cooling of inflation a trend or merely a phase? The answer to this question will determine the pricing anchor for crypto assets over the next few quarters.
Summary
Both U.S. CPI and PPI for June fell more than expected, slashing the probability of a Fed rate hike in July from 41.7% to 15.5% and triggering a phase of risk asset recovery. Bitcoin rebounded more than 8% over two weeks, while Ethereum surged nearly 20% from its low. However, this round of cooling inflation is highly dependent on falling energy prices, and the stickiness of core inflation and geopolitical uncertainty in the Middle East cast doubt on the sustainability of the downward trend. The crypto asset rally mainly reflects a "revision of expectations" regarding slower policy tightening, rather than a signal of a trend reversal. The trajectory of inflation data in the coming months and the impact of geopolitics on energy prices will be the key variables determining crypto asset pricing logic.
FAQ
Q1: What was the specific U.S. PPI figure for June?
A: U.S. final demand PPI for June fell 0.3% month-over-month and rose 5.5% year-over-year, significantly below the market expectation of 6.2%. Core PPI rose 4.7% year-over-year, below the expected 5.2%.
Q2: How did the probability of a Fed rate hike in July change after both CPI and PPI cooled?
A: According to the CME FedWatch tool, the probability of a 25-basis-point Fed rate hike in July dropped from 41.7% before the data release to 15.5%. The market now largely sees "hold steady" as the baseline scenario for July.
Q3: How did Bitcoin and Ethereum perform in this rally?
A: As of July 16, 2026, Bitcoin was quoted at $64,586.1, rebounding more than 8% from its two-week low of $59,660. Ethereum climbed nearly 20% from its low of $1,601.
Q4: Is the current round of cooling inflation sustainable?
A: There is considerable uncertainty. The cooling is mainly due to falling energy prices, but Middle East geopolitical tensions could drive oil prices back up. Meanwhile, core service prices remain sticky, and core PPI is still elevated at 5.1% year-over-year. One month’s data is not enough to confirm a trend reversal.
Q5: Is the current crypto rally a trend reversal?
A: At this stage, it is more of a "relief rally" than a trend reversal. Market pricing reflects a revision of expectations for slower Fed tightening. $67,200 is a key resistance level for Bitcoin, and future price action will depend on the sustainability of inflation data and changes in geopolitical risk.
