**EUR/USD Rebounds on Strengthening Fed Rate Cut Expectations After PCE Data**
*By Anil Panchal – Original article published on FXStreet (paraphrased and extended, with additional reporting from Reuters, Bloomberg, and CNBC)*
The EUR/USD currency pair staged a notable rebound on Thursday, rising amid growing market expectations that the Federal Reserve might begin cutting interest rates sooner than previously anticipated. These expectations were fueled by the latest release of the U.S. Personal Consumption Expenditures (PCE) price index, which showed signs of easing inflationary pressure.
As investors digest the implications of the PCE data, the U.S. dollar faced growing downward pressure, leading to a general rise in major counterparts, particularly the euro. The softening inflation numbers have shifted sentiment in favor of near-term monetary easing, a potential tailwind for risk assets and non-dollar currencies.
This article dives deeper into the data, market movements, and wider economic implications surrounding the surging EUR/USD pair, building on the original reporting from Anil Panchal at FXStreet and integrating analysis from additional sources.
## Inflation Data Sparks Dollar Weakness
At the center of the EUR/USD rally was the U.S. PCE price index—widely considered the Federal Reserve’s preferred gauge of inflation.
**Key Highlights from the May PCE Report:**
– Core PCE (which excludes volatile food and energy prices) rose 0.1% in May from the prior month, in line with market expectations.
– On a year-over-year basis, the core PCE inflation eased to 2.6%, down from 2.8% in April and its lowest level in over three years.
– The headline PCE inflation rate also slowed to an annual rate of 2.6%, compared to 2.7% previously.
This deceleration in inflation reinforced market beliefs that the Fed may pivot towards monetary easing in the latter part of 2024, as inflation trends align more closely with the central bank’s 2% long-term target.
According to CME FedWatch Tool data immediately following the release, markets priced in a higher probability of at least one rate cut by the September meeting.
## Fed Policy Outlook Growing Dovish
The Federal Reserve has maintained interest rates in the 5.25% to 5.50% range since July 2023, citing resilience in consumer spending and labor markets. However, Fed officials have recently acknowledged progress on inflation.
Fed Chair Jerome Powell, in his recent congressional testimony, stressed the need for “greater confidence” that inflation was sustainably moving toward the central bank’s goal. While Powell was cautious not to commit to specific timing for cuts, he admitted the Fed didn’t need to wait until inflation was at 2% before acting.
**Recent Fed Statements and Shifting Sentiment:**
– The June FOMC meeting left rates unchanged, but the Summary of Economic Projections showed reduced expectations for future hikes.
– Several Fed governors, including Christopher Waller and Raphael Bostic, noted that falling inflation could justify a cut later this year.
– Traders are now leaning toward two potential rate cuts in 2024, possibly beginning in September.
The market’s dovish pivot has weighed heavily on U.S. Treasury yields. The 10-year yield dropped below 4.35%, while the 2-year yield also slid sharply after the PCE print. Lower yields reduce demand for the U.S. dollar and make high-yielding alternatives more attractive, boosting demand for the euro.
## EUR/USD Technical and Market Analysis
From a technical standpoint, EUR/USD traded higher in the aftermath of Thursday’s PCE data, with bullish momentum driving the pair to 1.0760 at the time of writing.
**Daily Chart Observations:**
– The pair bounced from support near 1.0670, forming a short-term bullish trend.
– RSI metrics on the daily chart moved above neutral 50, suggesting upward momentum.
– The
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