The U.S. Producer Price Index (PPI) for July 2025, reported rose 0.9% month-over-month and 3.3% year-over-year, significantly exceeding expectations of 0.2% and 2.5%, respectively. This marked the largest monthly increase since June 2022, signaling persistent inflationary pressures at the wholesale level.
Core PPI, excluding food and energy, also surged 0.9% monthly and 3.7% annually, far above forecasts. The hotter-than-expected PPI data reduced expectations for a Federal Reserve rate cut in September, with the CME FedWatch tool showing the probability dropping from 100% to 96%.
This shift triggered a sharp sell-off in risk assets. Bitcoin fell from an overnight high above $124,000 to below $119,000, Ethereum dropped nearly 4% to around $4,550, and other altcoins like Solana and XRP also declined significantly. Over $1 billion in crypto positions were liquidated within 24 hours, with $573 million from long positions alone.
Equities markets showed resilience, with the S&P 500 and Nasdaq finishing nearly flat, down 0.03% and 0.01%, respectively, supported by strength in mega-cap tech stocks. However, the Russell 2000 fell 1.24%, reflecting pressure on smaller companies sensitive to higher interest rate expectations. The U.S. dollar strengthened, and the 10-year Treasury yield rose by 5 basis points to 4.25%, indicating a move toward safer assets.
The PPI surge, partly attributed to rising tariffs and a 1.1% increase in services inflation, suggests businesses may pass higher costs to consumers, potentially sustaining inflationary pressures. This complicates the Fed’s policy path, with markets now anticipating a 94% chance of a 25-basis-point rate cut in September, down from expectations of a larger cut.
Gold prices typically face headwinds when inflationary data exceeds expectations and strengthens the U.S. dollar, as seen with the dollar index rising post-PPI. Spot gold traded around $2,430 per ounce on August 14, down from recent highs above $2,450, reflecting a 0.5% decline.
The 10-year Treasury yield climbing to 4.25% further pressured gold, as higher yields reduce the appeal of non-yielding assets. Despite short-term weakness, persistent inflation could bolster gold’s appeal as an inflation hedge. If the Fed maintains higher interest rates to combat inflation, as suggested by the reduced probability of a September rate cut (from 100% to 94% per CME FedWatch).
Gold may face volatility but could gain if investors seek safe-haven assets amid economic uncertainty. Geopolitical tensions or sustained CPI increases could further support gold prices, potentially pushing them toward $2,500 in the medium term.
The PPI data triggered a sharp correction in digital assets. Bitcoin dropped from above $124,000 to below $119,000, a roughly 4% decline, while Ethereum fell nearly 4% to around $4,550. Altcoins like Solana and XRP saw similar losses, with over $1 billion in crypto liquidations, including $573 million in long positions.
The sell-off reflects reduced risk appetite as investors reassessed the likelihood of a dovish Fed pivot. Digital assets, particularly cryptocurrencies, are highly sensitive to interest rate expectations. The PPI-driven shift toward a tighter Fed policy (94% chance of a 25-basis-point rate cut in September) dampened expectations of monetary easing, which typically supports speculative assets like crypto.
Higher yields and a stronger dollar further erode the appeal of digital assets in the short term. If inflationary pressures persist, digital assets like Bitcoin, often touted as a “digital gold” hedge, could see renewed interest. However, their volatility and correlation with risk-on assets like equities (e.g., Nasdaq) suggest they may underperform gold in a high-inflation, high-rate environment.
Adoption trends, regulatory developments, and network upgrades (e.g., Ethereum’s scaling solutions) will also influence long-term performance. Gold’s short-term downside due to a stronger dollar and higher yields, but long-term upside potential as an inflation hedge if CPI follows PPI’s trend.
Digital Assets are vulnerable to further near-term declines if Fed hawkishness persists, with Bitcoin and altcoins facing resistance unless risk sentiment improves. Long-term prospects depend on macroeconomic shifts and crypto-specific catalysts
