The EUR/USD pair advanced to around 1.1680 during Friday’s Asian session, supported by broad weakness in the US Dollar (USD). However, investor sentiment is expected to turn cautious ahead of the release of the US August Personal Consumption Expenditures (PCE) Price Index, a key inflation gauge closely watched by the Federal Reserve (Fed).
Fed officials continue to deliver mixed messages. Kansas City Fed President Jeffrey Schmid argued that further rate cuts may not be necessary in the near term, emphasizing the importance of driving inflation lower. In contrast, Chicago Fed President Austan Goolsbee stressed that he was reluctant to pursue additional policy easing while inflation remains above the Fed’s target and moving in the wrong direction.
Attention now shifts to US consumer spending data, which could provide clearer signals about the urgency of another Fed rate cut. Market pricing currently reflects an 87.7% probability of a 25 basis-point cut in October, slightly down from Wednesday’s 90%–92% range. A stronger-than-expected inflation reading could weaken the case for cuts and lend support to the Greenback, creating a headwind for EUR/USD.
Across the Atlantic, a Reuters poll indicated that most economists expect the European Central Bank (ECB) to keep interest rates steady for the remainder of the year. Growing sentiment that the ECB has completed its rate-cutting cycle may underpin the euro against the USD. Still, some institutions foresee the possibility of further cuts later in 2025 or early 2026 if economic conditions deteriorate.
