The Euro (EUR) has retreated from earlier gains against the US Dollar (USD) as the latter strengthens following the latest US economic data releases. Currently, EUR/USD trades around 1.1635, slightly down from its daily high of 1.1628. Despite this dip, the currency pair is on track for a second consecutive weekly gain, as market sentiment shifts towards confidence that the Federal Reserve (Fed) is likely to implement interest rate cuts in the upcoming week.
The recent publication of the delayed US Personal Consumption Expenditures (PCE) report for September suggests a steady inflation landscape. Core PCE—the Fed’s favored measure—increased by 0.2% month-over-month, in line with market expectations. The annual rate, however, eased to 2.8% from the previous 2.9%. Headline PCE remained steady at a 0.3% monthly increase, consistent with forecasts and unchanged from prior months. On an annual basis, the PCE Index also registered at 2.8%, slightly outperforming the August figure of 2.7%.
In terms of consumer spending and income, Personal Income rose by 0.4%, surpassing the anticipated 0.3%, while Personal Spending increased by 0.3%, matching analyst predictions but reflecting a slowdown from August’s 0.5% growth.
Additionally, the preliminary University of Michigan survey indicates an improvement in consumer sentiment as the year draws to a close. The Consumer Sentiment Index ticked up to 53.3, exceeding both the forecast of 52 and the earlier reading of 51. The Expectations Index also showed robust growth, reaching 55, up from a forecast of 51.2 and an increase from 51. In contrast, the 1-year inflation outlook dipped to 4.1% from 4.5%, and the 5-year outlook dropped to 3.2% from 3.4%.
Earlier labour data presented a mixed narrative. The ADP Employment Change for November showed a decline of 32,000 jobs, significantly below expectations. Conversely, Challenger Job Cuts decreased to 71,300, and Initial Jobless Claims fell to 191,000.
Overall, the stable inflation readings, coupled with easing consumer inflation expectations and softer employment signals, strengthen the case for a dovish stance from the Fed. According to the CME FedWatch Tool, market participants assign an approximately 87% probability to a 25 basis point rate cut at the monetary policy meeting scheduled for December 9-10.
In terms of value against other major currencies, the US Dollar remained strongest against the Japanese Yen. Tracking the percentage changes today, the USD registered a slight increase of 0.10% against the Euro, while showing a decline of 0.66% against the Yen. The data reveals varying fluctuations against other currencies, emphasizing the ongoing dynamics in the forex market.
