TradingKey - XRP retrenched to $1.3 under heavy pressure from rate hikes, but the likelihood of a future test of $1 is small because the probability of an October Fed rate hike remains low.
On October 15, Ripple (XRP) suffered collateral damage from network-wide market leverage liquidations across the cryptocurrency market amid "sticky inflation and rising rate hike expectations" brought by higher-than-expected US September CPI data. As of press time, XRP fell below the psychological defense line of $1.3 and was trading at $1.29, with market doubts over whether it will test the $1.00 mark rising significantly.
XRP price chart, Source: TradingView
Yesterday, the US released September CPI data showing that the YoY rate rose to 3.7% (beating expectations of 3.6%), with energy and gasoline surging 9.1% MoM. The rebound in inflation disrupted the Federal Reserve's rate-cut pace, driving US Treasury yields and the US Dollar Index (DXY) sharply higher, triggering a collective sell-off in high-beta crypto assets.
Following the release of the CPI data, the probability of an October Fed rate hike climbed rapidly. According to CME FedWatch data, the likelihood of a 25-basis-point rate hike surged from 21.6% to 32.7%, while the probability of keeping rates unchanged plummeted from 78.4% to 56.3%. However, as Fed officials spoke out, the likelihood of a rate hike began to fall back, currently dropping to 29.3%, while the chance of holding rates unchanged recovered to 70.7%, essentially returning to pre-CPI levels.
Market expectations for the Fed's October rate decision, Source: CME
Chicago Fed President Austan Goolsbee described the higher-than-expected US September inflation data as disappointing, while pointing out that "it remains unclear whether current interest rates are sufficient to bring inflation back to the 2% target, preferring to wait for more data before deciding whether to raise rates further."
In the view of San Francisco Fed President Mary Daly, there is currently no rush to raise interest rates. She explicitly stated that while the Fed may need to further raise short-term rates to curb excessively high inflation, there is no need to take this action at the Fed's next meeting (October 27-28).
Although market fear continues to spread, with the sentiment index falling to 47 from neutral to fear, the probability of the Fed keeping rates unchanged in October remains high. This fundamental factor is conducive to XRP price stabilizing and rebounding, making a continued deep plunge to $1 unlikely in the short term.
In other words, XRP's loss of $1.30 was a high-leverage derivative liquidation under the impact of macro inflation data, rather than a deterioration in on-chain fundamentals or the regulatory environment. Going forward, as long as XRP does not fall below its previous low of $1.25, the medium-to-long-term bullish structure remains intact.