In response, the price of Bitcoin plummeted, reversing some of the gains it had made in the past two days.

The world's largest cryptocurrency is caught between weak capital flows and tepid risk appetite. BTC has been trading in a narrow trading range of $60,000 to $70,000 for two months.

As of 8:30 a.m. ET, Bitcoin was trading down 0.5% at $65,473.3.

Bitcoin price set for a strong week on rate cut hopes
But Bitcoin, which fell as low as $60,000 last week, has made strong gains in the last seven days.

BTC is up nearly 8% from last Friday's lows, encouraged by dollar weakness amid signs of easing US inflation.

Following the softening in the consumer price index, investors have started to price in the possibility of the Fed cutting interest rates in September. That bodes well for speculative assets like Bitcoin and other cryptocurrencies.

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But that euphoria waned a bit today, capping Bitcoin's gains after a number of Fed officials warned that the central bank needs more convincing that inflation is falling.

Members of the Fed's rate-setting committee said the central bank needs to see more than softening inflation data this month before focusing on any rate cut plans.

Their comments sparked a sharp rebound in the dollar, halting the rally in most risk-oriented assets.

Adding to this uncertainty, sentiment towards cryptocurrencies has also been limited by fears of further regulatory action against the sector. Major altcoins are also down today.

Ethereum, the world's No. 2 token, fell 2.1%, while Solana and XRP moved less than 1%.

As the rally in meme stocks such as GameStop Corp (GME) and AMC Entertainment Holdings Inc (AMC) has largely reversed in recent sessions, meme tokens followed suit.

Dogecoin fell 3.6% on Friday, while Shiba Inu lost 2.8%.

Editor: David Goodman