**EUR/USD Rallies as Fed Rate Cut Speculation Grows After PCE Data**
*Adapted from original reporting by Dhwani Mehta, FXStreet, with supplementary insights from additional market sources*
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The EUR/USD currency pair experienced a notable rebound towards the end of the week, driven by rising investor speculation that the Federal Reserve could move closer to cutting interest rates. This renewed optimism stemmed from the latest US Personal Consumption Expenditures (PCE) Price Index data, which provided fresh evidence that inflationary pressure in the US may be easing. As a result, the US dollar weakened, bolstering demand for the euro.
This in-depth overview explores the factors shaping the current EUR/USD movement, parses through the latest economic indicators, and examines what the shifting central bank outlook could mean for the pair in the weeks ahead.
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### **US Core PCE Inflation Data—A Catalyst for Dollar Softness**
The US Bureau of Economic Analysis released its latest PCE Price Index figures for May, which is the Federal Reserve’s preferred gauge of inflation. Key details included:
– **Annualized Core PCE Inflation (May):** Rose by 2.6%, in line with market forecasts and slowing from April’s 2.8%.
– **Monthly Core PCE Print (May):** Increased by 0.1%, matching expectations and unchanged from the prior month.
Headline PCE inflation, which includes more volatile food and energy costs, also held steady at 2.6% year-over-year, similar to the consensus estimate.
Analysts saw these results as a sign that price pressures, while still above the Fed’s 2% target, are trending downward. This reduces the urgency for the central bank to maintain its current restrictive interest rate stance, prompting a decrease in US Treasury yields and undermining the US dollar.
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### **Impact on Rate Expectations: Futures Point to Higher Odds of a September Cut**
The market’s response to the PCE data was immediate. Investors recalibrated their expectations about the likely timing and scale of Federal Reserve rate reductions.
– **FedWatch Tool (CME):** After the PCE release, traders assigned a roughly 70% probability to at least a quarter-point rate cut at the September Federal Open Market Committee (FOMC) meeting, up from nearer 60% earlier in the week.
– **Total Cuts Expected in 2024:** Market pricing now suggests close to two 25-basis-point cuts by year-end, even as Fed officials have, in their latest projections, signaled only one reduction is likely this year (from the June dot plot).
Market participants had already been watching for signs that US inflation might be moderating on the back of easing consumer demand. The May PCE numbers reinforced this narrative, renewing calls for the Fed to acknowledge progress and begin unwinding some of its monetary policy tightening.
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### **EUR/USD Price Action: Technical Rebound Amid Dollar Weakness**
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