EUR/USD pares losses as soft US PCE inflation weighs on US Dollar

EUR/USD reverses intraday losses on softer-than-expected US PCE inflation report for August.
Flash French CPI (EU norm) and Spain's HICP fell below 2% year-on-year in September.
Softer-than-expected inflation data from France and Spain has prompted ECB rate cut bets in October.

EUR/USD recovers the majority of its intraday losses and returns above 1.1150 in Friday’s New York session. The major currency pair pares losses as the US Dollar (USD) falls back after the release of the United States (US) Personal Consumption Expenditures Price Index (PCE) for August, which indicated that inflation remains on track to return to bank's target of 2%.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, retreats to near 100.40 and declines toward the key support of 100.20. The report showed that the annual PCE inflation grew by 2.2%, slower than estimates of 2.3% and July's print of 2.5%. The core inflation, which excludes volatile food and energy prices, rose expectedly by 2.7% year-on-year from 2.6% in June. Month-on-month inflation data grew by 0.1%.

Signs of further slowdown in inflationary pressures would prompt market expectations for the Fed to reduce interest rates further in the last quarter of this year. Currently, financial markets seem to be confident that the Fed will cut interest rates for the second straight time in November as inflation is on track to return to the bank’s target of 2% and policymakers are concerned over growing risks to labor demand. However, traders remain equally split over the potential rate cut size between 25 and 50 bps, according to the CME FedWatch tool.

Next week, investors will focus on Fed Chair Jerome Powell’s speech on Monday, a slew of labor market data, and the ISM Purchasing Managers’ Index (PMI) to project the next move in the US Dollar.

US Dollar PRICE Today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Canadian Dollar.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		-0.06%	-0.04%	-1.34%	0.01%	-0.38%	-0.37%	-0.53%
EUR	0.06%		0.01%	-1.29%	0.03%	-0.32%	-0.32%	-0.45%
GBP	0.04%	-0.01%		-1.32%	0.03%	-0.33%	-0.33%	-0.46%
JPY	1.34%	1.29%	1.32%		1.39%	1.03%	1.02%	0.91%
CAD	-0.01%	-0.03%	-0.03%	-1.39%		-0.40%	-0.38%	-0.52%
AUD	0.38%	0.32%	0.33%	-1.03%	0.40%		0.01%	-0.13%
NZD	0.37%	0.32%	0.33%	-1.02%	0.38%	-0.01%		-0.14%
CHF	0.53%	0.45%	0.46%	-0.91%	0.52%	0.13%	0.14%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).

Daily digest market movers: EUR/USD recovers losses despite France, Spain inflation decelerates below 2%

EUR/USD pares some losses in European trading hours as the US Dollar falls back. While the Euro's (EUR) performance against other major peers remains weak after the release of the flash French Consumer Price Index (CPI) (EU Norm) and the Spain Harmonized Index of Consumer Prices (HICP) data showed that price pressures grew at a slower-than-expected pace in September.
A sharp deceleration in French and Spanish inflationary pressures has prompted market expectations for the European Central Bank (ECB) to cut interest rates again in the October meeting. This would be the third interest rate cut by the ECB in its current policy-easing cycle, which started in June. The ECB reduced interest rates again in September after leaving them unchanged in July.
Annual CPI in France grew at a pace of 1.5%, sharply lower than estimates of 1.9% and the former release of 2.2%. On month, price pressures deflated at a robust pace of 1.2%, faster than expectations of 0.8%. In Spain, the annual HICP rose by 1.7%, slower than estimates of 1.9% and from 2.4% in August. On month, the HICP declined by 0.1%, which was expected to remain flat.
Going forward, investors will focus on the preliminary German and Eurozone HICP data for September, which will be published on Monday and Tuesday, respectively.

Technical Analysis: EUR/USD recovers to near 1.1200

EUR/USD has consolidated in a 100-pip range since Tuesday as investors look for fresh Fed-ECB interest rate cues. The major currency pair remains firm as it holds the breakout of the Rising Channel chart pattern formed on a daily time frame near the psychological support of 1.1000.

The upward-sloping 20-day Exponential Moving Average (EMA) near 1.1110 suggests that the near-term trend is bullish.

The 14-day Relative Strength Index (RSI) edges lower below 60.00, suggesting momentum is weakening.

Looking up, a decisive break above the round-level resistance of 1.1200 will result in further appreciation toward the July 2023 high of 1.1276. On the downside, the psychological level of 1.1000 and the July 17 high near 1.0950 will be major support zones.

Economic Indicator

Core Personal Consumption Expenditures - Price Index (YoY)

The Core Personal Consumption Expenditures (PCE), released by the US Bureau of Economic Analysis on a monthly basis, measures the changes in the prices of goods and services purchased by consumers in the United States (US). The PCE Price Index is also the Federal Reserve’s (Fed) preferred gauge of inflation. The YoY reading compares the prices of goods in the reference month to the same month a year earlier. The core reading excludes the so-called more volatile food and energy components to give a more accurate measurement of price pressures." Generally, a high reading is bullish for the US Dollar (USD), while a low reading is bearish.

Why it matters to traders?

After publishing the GDP report, the US Bureau of Economic Analysis releases the Personal Consumption Expenditures (PCE) Price Index data alongside the monthly changes in Personal Spending and Personal Income. FOMC policymakers use the annual Core PCE Price Index, which excludes volatile food and energy prices, as their primary gauge of inflation. A stronger-than-expected reading could help the USD outperform its rivals as it would hint at a possible hawkish shift in the Fed’s forward guidance and vice versa.

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.