EUR/USD recovered on Friday as traders’ confidence rose that the Federal Reserve (Fed) will reduce interest rates following the latest US inflation report. At the time of writing, the pair trades at 1.1697, up 0.27%.
Euro eyes 1.1700 as softer US inflation fuels confidence in easing
The week ended in recovery mode for the shared currency after the US Bureau of Economic Analysis (BEA) reported that the Fed’s preferred inflation gauge, the core Personal Consumption Expenditures (PCE) Price Index, came in line with estimates but remained below the 3% threshold. Following the announcement, bets on the Fed reducing borrowing costs increased from 84% the day before to 88%, according to the Prime Market Terminal interest rate probability tool.
Federal Reserve officials also crossed the wires. Fed Governor Michelle Bowman struck a dovish tone, noting that the labor market is fragile and policy adjustments may need to accelerate if conditions deteriorate. Earlier, Richmond Fed President Thomas Barkin remarked that both inflation and unemployment are trending in the wrong direction, though he viewed the downside as limited.
In Europe, a light economic docket left traders focused on geopolitics. NATO warned Russia it is prepared to intercept aircraft, while Bloomberg reported that European officials privately told Moscow they are ready to shoot down jets, viewing the Estonia airspace incursion as deliberate.
Key data ahead in US and Eurozone
Next week’s US schedule will feature a flurry of Fed speakers, the ADP National Employment Change, ISM Manufacturing PMI, Initial Jobless Claims, and September’s Nonfarm Payrolls. Across the eurozone, the calendar includes Business Climate, Consumer Confidence, the Economic Sentiment Indicator, September inflation figures, Flash PMIs, and German inflation and Retail Sales, alongside commentary from ECB officials.
Daily market movers: Euro supported by PCE data
The US core PCE Price Index rose 2.9% YoY in August, matching forecasts and unchanged from July. Headline PCE ticked up to 2.7% YoY from 2.6%, in line with projections. The University of Michigan’s final September Consumer Sentiment came in weaker than expected at 55.1 versus 55.4 anticipated. Inflation expectations eased slightly, with the one-year outlook at 4.7% (from 4.8%) and the five-year view at 3.7% (from 3.9%).
On trade policy, President Donald Trump announced new tariffs: 100% on pharmaceuticals, 50% on kitchen cabinets, bathroom vanities and related products, 40% on upholstered furniture, and 25% on heavy trucks. In Europe, the ECB’s Consumer Expectations Survey showed households see inflation at 2.8% in one year, while the five-year outlook ticked up to 2.2% from 2.1%.
Technical outlook: EUR/USD steadies near 1.1700
EUR/USD ended the week on a soft note but found support near 1.1650. The pair rebounded towards 1.1700 but failed to close above that level. The Relative Strength Index (RSI) remains bearish, and the failure to break 1.1700 leaves the pair vulnerable to further downside.
Immediate support is at 1.1650, followed by 1.1600. A break lower could expose the 100-day SMA at 1.1588. On the upside, reclaiming 1.1700 would open the door to 1.1750, with the next resistance at 1.1800.
