**EUR/USD Rebounds as Fed Rate Cut Expectations Rise Following PCE Data**
*Based on original reporting by Tareq Sikder, FXStreet, with additional analysis included.*
The euro climbed against the US dollar on Friday as fresh economic data from the US underscored weakening inflation pressures, encouraging investors to bet more heavily on imminent Federal Reserve interest rate cuts. As the US Core Personal Consumption Expenditures (PCE) Price Index registered slightly below forecast, financial markets recalibrated expectations for the timeline and magnitude of Fed monetary easing, sending the dollar lower and lifting the EUR/USD pair. Here is a detailed analysis of the latest price movements, key technical levels, and broader macroeconomic implications for the EUR/USD.
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### US Inflation Data Sparks Dovish Fed Bets
At the center of Friday’s market movement was the release of the US Core PCE Price Index for May, recognized as the Federal Reserve’s preferred gauge of inflation. According to the data:
– The annualized reading for May stayed steady at 2.6 percent, matching April’s print but undershooting market forecasts.
– On a monthly basis, core PCE inflation rose 0.1 percent, just below the anticipated 0.2 percent.
– The headline PCE index was unchanged month-on-month, while core (excluding food and energy) also surprised to the downside.
This softer inflation reading validated growing perceptions that price pressures in the world’s largest economy are cooling, reinforcing the case for the Fed to start considering monetary easing before the end of 2024.
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### Fed Policy Outlook: Market Expectations Shift
Prior to the PCE report, investors remained divided on the Fed’s policy trajectory for the remainder of 2024, torn between higher-for-longer rates and the prospect of rate cuts if inflation subsided. Following the data release:
– Market-implied probabilities reflected an increased chance of a rate cut in September, with expectations of at least two cuts before year-end.
– The yield on 2-year US Treasuries, which is particularly sensitive to policy outlook, declined in response to the new inflation figures.
– US dollar weakness was pronounced as traders priced in fewer obstacles to Fed rate cuts.
Further supporting a dovish tilt, several Fed officials have recently acknowledged progress in the fight against inflation. While some policymakers remain cautious, citing persistent factors like shelter costs or labor market tightness, the latest core PCE data gave investors more confidence that rate reductions could materialize sooner rather than later.
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### EUR/USD Price Action: Bulls Take the Lead
Against this backdrop, the euro posted notable gains against the greenback:
– EUR/USD rebounded sharply from a weekly low, climbing toward 1.0730 after the PCE release.
– Buyers drove the pair back above the 200-period Exponential Moving Average (EMA) on the four-hour chart, signaling renewed bullish momentum.
– The euro also found support from fresh Eurozone inflation data, which showed headline consumer price increases
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