**EUR/USD Surges as US Fed Rate Cut Hopes Strengthen Following Core PCE Data**
Original reporting by Eren Sengezer for FXStreet, with additional insights integrated from Reuters and Bloomberg reporting.
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**Summary:**
The EUR/USD currency pair has rebounded sharply, buoyed by fresh data from the United States that reignited investor expectations for an interest rate cut by the Federal Reserve. The recent US Personal Consumption Expenditures (PCE) Price Index report, which is a key indicator of inflation closely monitored by the Federal Reserve, came in softer than projected for the month of May. This has underscored market sentiment that the Fed might ease monetary policy sooner than previously anticipated. In Europe, meanwhile, economic uncertainty and political risk remain in focus, but for now, the shifting US outlook is dominating the EUR/USD narrative.
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### PCE Inflation Data: The Immediate Catalyst
– **For May, the Core PCE Price Index (Fed’s preferred inflation metric) grew by 0.1% month-on-month, below consensus forecasts of 0.2%.**
– **Annualized core PCE inflation slipped to 2.6%, meeting expectations but showing a trend towards the Fed’s 2% inflation target.**
– **Personal Income in the US rose 0.5% in May, matching expected growth rates.**
– **Personal Spending climbed 0.2%, slightly lower than forecasts of 0.3%.**
– **The headline PCE Price Index also increased 0.0% month-on-month, indicating stable price pressures for consumers.**
The latest PCE data confirmed that inflationary pressures are cooling, giving the Federal Reserve room to consider rate cuts without risking runaway inflation.
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### Market Reaction to PCE Release
– **US Treasury yields fell in reaction to the data as investors rushed to price in a higher likelihood of Fed easing.**
– **The 2-year note yield sank below 4.70% briefly, while the 10-year yield also edged lower.**
– **The US Dollar Index (DXY) declined to near 105.70 after the PCE data, reflecting a weaker dollar across multiple currencies.**
– **EUR/USD advanced from daily lows near 1.0680 to above the 1.0730 mark, registering one of the largest single-session gains of the month.**
– **S&P 500 futures turned positive after the data, as stocks typically react well to the prospect of lower borrowing costs.**
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### Shifting Fed Rate Expectations
**Federal Reserve officials have repeatedly signaled that they require more compelling evidence of inflation moving sustainably toward their target as a precondition for reducing rates. However, the latest data brought the following into focus:**
– **According to CME FedWatch Tool, market-implied probabilities of a September rate cut shot up to nearly 70% following the PCE report, from about 55% a week before.**
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