Bitcoin mirrors cautious equity trends ahead of US CPI and Fed rate decision this week

Bitcoin is correlating with cautious equity markets ahead of Tuesday's U.S. Consumer Price Index (CPI) report and a Federal Reserve rate announcement on Wednesday.

The expectation among investors is that the U.S. Federal Reserve does not have much space to maneuver, after much higher May payrolls lowered expectations for the central bank's first rate cut in September. According to the CME's FedWatch tool, interest rate traders are betting the Fed might keep rates on hold until November. The tool indicates a 47% probability that the Fed will maintain rates at their current levels during September's Federal Open Market Committee (FOMC) meeting.

Bitcoin follows equities lower

U.S. stock futures ticked lower ahead of the latest CPI inflation report and June FOMC meeting. Dow Jones Industrial Average futures dropped 0.38% and S&P 500 futures were down 0.23% in pre-market trading.

Meanwhile, major European and UK equity indices were red. In London, the FTSE 100 posted a 60.90-point decrease to 8,167.58 in mid-day trading.

Bitcoin moved lower with depressed equity markets. The world's largest digital asset by market cap decreased by around 3.7% in the past day and was changing hands for $66,797 at 7:12 a.m. ET., according to The Block's Price Pages.

Bitcoin correlating with risk-assets

Deribit CEO Luuk Strijers told The Block that bitcoin is currently showing a higher correlation with risk-assets than usual. "Correlation is above average at the moment, even with gold," Strijers said. His observation concurs with the 30-day BTC Pearson Correlation chart, found on The Block Data Dashboad.

Strijers said that as a result of this correlation, we may see the bitcoin market express a risk-off sentiment and increased caution ahead of the U.S. inflation numbers and the FOMC meeting on Wednesday.

"Traders are likely to be more conservative, potentially reducing exposure or using option strategies to hedge until there is more clarity on the economic outlook. Implied Volatility has dropped across the curve for bitcoin and ether. Despite this short-term uncertainty, the basis yields and call skew remains high, for all listed expiries," Strijers added.