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Cryptocurrency prices rose on Wednesday after a widely-watched inflation gauge in the U.S. suggested the Federal Reserves fight against soaring prices is making progress.

The Consumer Price Index rose 4.9% in the 12 months through April, the Bureau of Labor Statistics (BLS) said Wednesday, coming in slightly below economists' estimates of 5%.

On a month-to-month basis, the index, which tracks price movements across a broad range of goods and services, rose 0.4% in April compared to a 0.1% bump in March and a 0.4% increase in February.

Bitcoin was up 1.4% over the past day, chipping away at weekly losses of 1.8% at around $27,900, according to CoinGecko. Ethereum was also in the green, notching a 1.6% daily increase and reversing a weekly downtrend at $1,870. Meanwhile, the global crypto market capitalization was sitting at $1.2 trillionup 0.8% from the previous day.

In terms of the impact that Wednesdays CPI print had on crypto markets, Managing Director at Wave Digital Assets Nauman Sheikh toldDecrypta lack of liquidity is likely at play, pointing to market makers like Jane Street and Jump who havescaled back.

Liquidity just fell off a cliff, so any market impact on the way up on the way down will be a little bit more exaggerated, he said. There's no depth to the market, which means any slight pressure on either side is just going to be exasperated.

The indexs increase in April was largely fueled by a jump in housing prices, which grew 0.4% month-to-month, the BLS said. But the measure represented a notable decline compared to a monthly increase of 0.6% in March and 0.8% in February.

The report indicated that core inflation, which strips out volatile food and energy costs, rose 5.5% in the 12 months through April, edging down from 5.6% in March.

For the most part, inflation has steadily cooled over the past several months, down significantly from a sweltering 9.1% clip last June. Still, the latest report showed annual inflation remains far above the Feds target of 2%. And the U.S. central bank has jacked interest rates aggressively in response to rising prices. Its lifted interest rates to their highest levels since 2007, delivering its 10th consecutive rate hike last week.

Higher interest rates cool down the economy because of their ripple effect, impacting costs associated with credit cards and mortgages. They also weigh on stocks and other risk assets, such as crypto, making yields on cash reserves and U.S. Treasury Bills comparatively more attractive.

The Fed risks tipping the U.S. economy into a recession if it raises rates too quickly. And signs of stress emerged in the financial system when several banks collapsed in March. The tumult continued when First Republic Bank failed last week. Now a potential debt ceiling crisis looms.

When the Fed decided to raise interest rates last week, Chair Jerome Powell indicated there could be a potential pause. But he said the central bank would wait and see how the economy performed before making a decision at the Feds next meeting in June.

The fact that [inflation] is within expectations, a bit better for the annual rate, it means the Fed will likely pause, Kaiko analyst Dessislava Aubert toldDecrypt, Because the current banking turmoil in the U.S. is basically making traditional tightening less necessarybanks are already tightening lending standards.

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Bitcoin, Ethereum Push Higher As Inflation Slows to 4.9% in April - Decrypt