Euro: Lower against US Dollar after PCE surprise – Danske Bank

The Euro (EUR) slipped against the US Dollar (USD) following a surprise in the United States Personal Consumption Expenditures (PCE) Price Index inflation. The hawkish response to the data led to higher rates in the US, negatively impacting EUR/USD. The pair decreased to 1.1650 as the US Dollar gained support from stronger economic data.

Markets also priced in a potential September Fed rate hike, intensifying downward pressure on EUR/USD. In the United States, headline PCE inflation remained above expectations at 3.7% year-over-year in July, aligning with the previous month and surpassing consensus at 3.6%. On a monthly basis, headline PCE increased by 0.2% month-over-month, exceeding expectations of 0.1%.

Core PCE remained in line with expectations at 3.3% year-over-year and 0.2% month-over-month. Market reactions were hawkish, with rates rising across both short and long-term horizons, while EUR/USD declined. The USD found backing in the surprisingly robust PCE inflation reading, leading to EUR/USD dropping to 1.1650. The US Federal Reserve's annual Jackson Hole conference will convene, focusing on Financial Innovation: Implications for Payments and Policy.

The conference's main market driver will be Federal Reserve Chair Jerome Powell's speech on Friday, with traders anticipating hints about monetary policy in September. In the eurozone, the European Central Bank's (ECB) July meeting minutes will be released at 13:30 CET, revealing discussions from the meeting where the ECB maintained policy rates steady.

The minutes are expected to indicate a bias for a rate hike in September, a prediction already reflected in market pricing. There are unlikely to be significant new signals post-September, so their impact on the market should be limited. (This article was generated using an AI tool and edited by an editor.) The FXStreet Insights Team is a team of reporters who carefully selects market observations from respected experts.

The content features insights from commercial sources and additional commentary from both internal and external analysts. GBP/USD is trading near the lower end of its weekly range, below the 1.3600 level, during European trading hours on Thursday. The pair's downside, however, is supported as traders await Federal Reserve Chair Jerome Powell's speech on Friday for more clues about the US central bank's interest rate direction before taking new directional positions.

EUR/USD remains in a range around 1.1650 in the European session on Thursday. Hawkish expectations surrounding the ECB bolster the pair, while the US Dollar consolidates following the US PCE data-driven increase. The focus remains on Middle East developments and US Jobless Claims data. Gold failed to capitalize on modest gains in the Asian session on Thursday and stays below its highest level since May 14, reached earlier this week.

Traders now appear hesitant to make aggressive directional bets and wait for US Federal Reserve Chair Kevin Warsh's speech at the Jackson Hole Symposium on Friday for cues on future policy direction. The outlook will play a crucial role in influencing US Dollar price dynamics and providing meaningful support to the non-yielding bullion.

Kevin Warsh is set to deliver his first Jackson Hole speech as Federal Reserve Chair on Friday, and expectations are far-reaching, extending beyond whether interest rates will be raised or left unchanged in September.