EUR/USD rebounds following American PCE data

EUR/USD is about 0.70% up, trading at 1.0427 at the time of writing. Earlier on Friday, the EUR/USD pair has rebounded above 1.0400 in the North American session after posting a three-week low near 1.0340 in Asian trading hours. The major currency pair’s growth in the US Personal Consumption Expenditures Price Index (PCE) data remains slower than expected in November, with annual core PCE inflation rising by 2.8%, slower than estimates of 2.9%. This has weighed on the US Dollar (USD), which fell below 108.00 after posting a fresh two-year high above 108.50 earlier in the day.

Moderate growth in the inflation data is unlikely to impact market expectations that the Federal Reserve (Fed) will leave interest rates unchanged at their current levels in January. The Fed signaled fewer interest rate cuts for 2025 amid robust growth rate after reducing its key borrowing rates by 25 basis points (bps) to the 4.25%-4.50% range. The US Bureau of Economic Analysis (BEA) revised the Q3 GDP growth rate higher to 3.1%.

Euro/USD gains temporary ground near the yearly low as the Euro (EUR) gets firm footing against the approval of taxation reforms by German lawmakers, which will result in a reduction in annual tax revenue by 14 billion euros. Higher spending will also diminish risks of Eurozone inflation undershooting the European Central Bank’s (ECB) target of 2%, given that Germany is the largest nation in the old continent.

ECB policymaker and Governor of Central Bank of Cyprus Christodoulos Patsalides has pushed back expectations of bigger rate cuts for stimulating growth, boosting the Euro’s appeal in the near term. He would go for bigger interest rate cuts only if inflation expectations show that price pressures “will remain well below the target for a very long time.”

EUR/USD holds the key support of 1.0340 in Friday’s European session, but the outlook of the major currency pair remains strongly bearish as all short-to-long-term Exponential Moving Averages (EMAs) are declining.