Euro finds support as softer US PCE data prompts traders to trim Fed rate-hike bets

EUR/USD finds support as softer US PCE data prompts traders to reduce expectations of another Federal Reserve interest rate hike in October. The US Dollar Index trades around 101.20, after peaking at 101.61 on Tuesday. The Personal Consumption Expenditures (PCE) Price Index in the US rose 0.2% month-over-month in August, below expectations.

Core and headline PCE inflation also fell short of forecasts. Markets now see a 37% chance of a Fed rate increase next month, down from around 70% earlier in the week. However, other data shows US economic resilience. Second-quarter GDP growth was revised to 2.2% from 1.5%, driven by strong consumer spending and business investment.

The ADP Employment Change report indicated 90,000 jobs added in September, surpassing forecasts. These positive figures give policymakers more time to focus on bringing inflation back to the 2% target, keeping the possibility of another Fed rate hike alive later this year. The Eurozone's focus is on inflation acceleration, with Germany, France, Italy, and Spain all experiencing higher rates in September.

Traders await the Eurozone inflation report on Friday for clearer insights. Despite the Euro's decline to its lowest level since May 2025, further inflation shock in the Eurozone could provide a lifeline to the currency.