**EUR/USD Rebounds as US PCE Data Reinforces Rate Cut Expectations**
*Original reporting credited to FXStreet and additional market data incorporated.*
—
The euro-to-US dollar currency pair (EUR/USD) experienced a marked recovery following the release of the latest US Personal Consumption Expenditures (PCE) data. Softening inflation statistics have reignited market speculation for prospective Federal Reserve policy shifts, specifically rate cuts, in the coming months. The PCE figures are important because the Federal Reserve closely monitors them as their preferred measure of inflation. As the PCE data has now undershot expectations, the anticipation for a dovish turn from the Fed has increased, igniting EUR/USD’s upward momentum.
**Key Points:**
– The US Core PCE Price Index (YoY) for May came in at 2.6 percent, meeting expectations and matching the previous month’s reading.
– The MoM (Month over Month) Core PCE rose just 0.1 percent, undershooting the 0.1 percent consensus estimate, signaling persistent disinflationary trends.
– Weaker-than-anticipated inflation bolsters traders’ confidence that the Federal Reserve is edging closer to initiating its first rate cut since 2020.
– These expectations drove risk sentiment higher and contributed to the resurgence of the euro against the US dollar.
### US Inflation Trends Influence Fed Outlook
Persistent cooling in key inflation measures like PCE has increased the likelihood of rate adjustments from the Federal Reserve later this year.
**US PCE data details:**
– The PCE index, a gauge for tracking the changing costs of goods and services purchased by American consumers, fell slightly for both headline and core measures.
– Headline PCE (which includes food and energy prices) rose by 2.6 percent annually, up from 2.7 percent, and by 0 percent monthly, undershooting expectations for a 0.2 percent gain.
– The moderation signals that the US central bank’s tighter monetary policy is having its intended dampening effect on price pressures.
Following the release, financial markets moved to more firmly price in the likelihood that the Fed will start cutting rates as soon as September.
### EUR/USD Market Reaction
The euro responded strongly as traders sold the dollar amid increasing expectations that the Fed will soon make its policy more accommodative.
**Immediate Market Moves:**
– EUR/USD jumped above the 1.0700 level, erasing previous session losses and moving back toward the 1.0750 handle.
– The US dollar index (DXY) suffered a notable drop on the news. When the dollar index falls, bilateral pairs such as EUR/USD can experience sharp increases, as was witnessed after the PCE release.
– The bond market also reacted. US Treasury yields declined, reflecting weaker inflation and the expectation of a less aggressive Fed stance.
### Fed Rate Cut Expectations Grow
Forward-looking indicators in the financial markets now reflect stronger bets on rate cuts, with swaps pricing in multiple policy
Read more on AUD/USD trading.