**EUR/USD Rises as Markets Increase Fed Rate Cut Expectations Following US PCE Data**
*Adapted from the original article by Eren Sengezer for FXStreet. Additional insights included to enhance understanding of the topic.*
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**Overview**
The EUR/USD has shown notable resilience this week, rebounding from recent lows as market sentiment shifted in the wake of crucial US Personal Consumption Expenditures (PCE) inflation data. Optimism about an accelerated pace of interest rate cuts by the Federal Reserve has contributed to the surge in the euro against the dollar. This article explores the factors influencing the forex pairing, key data releases, central bank rhetoric, and the broader context shaping the EUR/USD outlook.
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**Key Developments this Week**
– The US Dollar weakened after softer-than-expected PCE inflation figures signaled the Federal Reserve may be closer to commencing its rate-cutting cycle.
– The EUR/USD pair rebounded decisively from representing a significant technical support level around 1.0670, moving towards and beyond 1.0800.
– Market participants increased bets on multiple Federal Reserve interest rate cuts by the end of 2024, with growing anticipation for the first reduction to occur as early as September.
– European Central Bank (ECB) policymakers reinforced the consensus that further monetary easing in the eurozone may be limited despite the recent June rate cut.
– Investors kept a close watch on economic indicators and central bank commentary as the euro maintained its recent upward trajectory.
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**US PCE Data and Its Market Implications**
The Commerce Department released May’s Personal Consumption Expenditures (PCE) Price Index, which is the Fed’s preferred measure of inflation. The data underscored cooling price pressures in the world’s largest economy:
– The core PCE Price Index, which excludes food and energy, rose 2.6% annually, down from the previous month’s 2.8%, and matched market expectations.
– On a monthly basis, core PCE came in flat at 0.1%, also aligning with the consensus estimate.
– Headline PCE inflation also ticked lower, reinforcing the narrative of receding inflationary risks.
**Implications:**
– The subdued inflation readings strengthened dovish expectations for the Federal Reserve over the coming months.
– Treasury bond yields slipped, and the US Dollar Index (DXY) reversed earlier gains, providing further support for EUR/USD.
– Market-implied pricing for the September FOMC (Federal Open Market Committee) meeting reflected an increase in expectations for a rate cut.
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**Federal Reserve Policy Expectations**
In the wake of the latest PCE numbers, traders and analysts renewed their scrutiny of the Federal Reserve’s forward guidance.
**Key Developments:**
– Prior to the data, Fed Chair Jerome Powell and key policy makers emphasized the need for more evidence of inflation returning towards target before initiating easing.
– Post-data, market-implied probability of a September rate cut surged above 65%, according to CME FedWatch
Read more on AUD/USD trading.