**EUR/USD Bounces Back as Fed Rate Cut Expectations Gain Momentum After PCE Report**
*Based on an article by FXStreet’s Eren Sengezer, additional insights and references included.*
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The EUR/USD currency pair experienced a notable rebound, climbing higher following the latest inflation data from the United States. The currency market’s response was largely shaped by the release of the Personal Consumption Expenditure (PCE) Price Index, a key inflation gauge closely watched by the Federal Reserve for monetary policy decisions. The report heightened speculation that the Federal Reserve may be edging closer to cutting interest rates, and this shift in sentiment bolstered the euro against the US dollar.
### Overview of Latest PCE Data and Market Reaction
The core PCE Price Index for May met market expectations, increasing by 0.1% month-on-month, and the annual figure printed at 2.6%, in line with analyst forecasts. The headline PCE recorded a 0.0% monthly change, translating to a year-on-year increase of 2.6%. As inflation continues to moderate, markets have interpreted this report as evidence that price pressures in the United States may be easing further, providing the Federal Reserve with more reason to consider cutting rates.
– **Key PCE Data Points:**
– **Core PCE (MoM):** 0.1% (as expected)
– **Core PCE (YoY):** 2.6% (as expected)
– **Headline PCE (MoM):** 0.0%
– **Headline PCE (YoY):** 2.6%
The immediate market impact was a surge in probability for a September rate cut, pushing the odds above 60% according to CME Group’s FedWatch Tool. Prior to the data release, traders had been split on when the Fed would start easing; these PCE figures tipped the balance toward expectations for earlier action.
### EUR/USD Price Action Post-Report
– Following the PCE release, EUR/USD rebounded from its intraday lows near 1.0680, reaching as high as the 1.0750 region by the New York close.
– The bounce reversed earlier losses caused by a broadly stronger US dollar and market caution heading into the data.
– The pair’s upside movement also benefited from stable eurozone inflation expectations and residual optimism regarding the European Central Bank’s (ECB) cautious policy stance.
Technical analysis on EUR/USD indicated that the currency pair managed to hold key support levels and now faces a potential shift in short-term momentum.
### Broader Context: Why PCE Matters
The Personal Consumption Expenditures Price Index is the Federal Reserve’s preferred inflation metric. The core measure excludes volatile food and energy components, providing a clearer sense of underlying price trends. When core PCE moves closer to the Fed’s target of 2%, investors in currency and fixed-income markets brace for possible monetary easing.
**Why the May PCE Data Matters
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