**EUR/USD Rebounds Amid Rising Fed Rate Cut Speculation Following Softer PCE Data**
*Adapted from original reporting by Christian Borjon Valencia, FXStreet.com*
The euro made notable gains against the US dollar in late September 2025, buoyed by mounting expectations that the Federal Reserve may adopt a more dovish monetary policy stance following a key inflation report. The EUR/USD currency pair rebounded on the final Friday of the month, primarily driven by softer-than-expected data from the US Personal Consumption Expenditures (PCE) report. This renewed market optimism over potential interest rate cuts by the Federal Reserve in early 2026.
This article expands on the original reporting by Christian Borjon Valencia from FXStreet and incorporates related developments and market sentiment from other respected sources.
### Summary of Key Developments:
– EUR/USD rose nearly 0.5% on Friday, September 26, settling just below the 1.0600 threshold.
– The rebound was largely attributed to lower-than-expected US Core PCE inflation data.
– Market participants are increasingly pricing in a rate cut by the Federal Reserve in the first half of 2026.
– A weakened US dollar index (DXY) further supported the euro’s recovery.
– Hawkish signals from the European Central Bank (ECB) remain subdued as euro area inflation moderates.
### EUR/USD Market Performance Overview
Prior to the release of US inflation data, investor sentiment remained relatively cautious. The EUR/USD pair had been under persistent pressure due to robust US economic indicators and repeated hawkish commentary by Federal Reserve officials. However, a shift occurred following the September PCE report, which showed signs of easing inflation in the world’s largest economy.
Following the release, EUR/USD staged a recovery from weekly lows around 1.0500, moving toward the 1.0580 level by the end of Friday’s session. According to FXStreet’s Christian Borjon Valencia, this bounce was notable in a thin market environment, which often characterizes the final trading days of the quarter.
### US Core PCE Report and Its Impact
The US Bureau of Economic Analysis reported that:
– The Core Personal Consumption Expenditures (PCE) Price Index rose by 0.1% in August 2025.
– On a year-over-year basis, Core PCE inflation slowed to 3.5%, down from 3.6% in July.
– Headline PCE inflation recorded a 0.2% monthly gain, an annual rate of 3.4%.
These figures came in below market expectations of 0.2% monthly and 3.6% annual increases in core inflation. The data suggested that inflation may be cooling faster than anticipated, igniting hopes that the Federal Reserve will shift away from its aggressive monetary tightening campaign.
PCE is the Fed’s preferred inflation gauge, and any significant change in its trajectory tends to influence monetary policy outlooks. Traders quickly adjusted their rate cut expectations after the release.
### Market Reaction to Inflation Report
In response to the softer inflation data, financial markets witnessed a broad decline in US Treasury yields. Specifically:
– The US 10-year Treasury yield dropped from 4.55% to 4.45%.
– The US Dollar Index (DXY) faltered, slipping below the 106 mark.
– Equity markets rallied, with the S&P 500 and Nasdaq Composite posting gains as rate hike fears eased.
A softer dollar tends to support major currencies like the euro, and this was reflected in the rebound in EUR/USD.
### Federal Reserve: Adjusting to Evolving Data
Although the Federal Reserve had maintained a hawkish tone in recent months, signaling that rates could remain restrictive for “some time,” the latest inflation print prompted traders to adjust their expectations. According to the CME FedWatch Tool:
– The probability of a Fed rate cut by March 2026 stood at 47% post-report.
– Prior to the PCE data
Read more on USD/CAD trading.