EUR/USD has declined to approximately 1.1365 during the early Asian session on Friday. The US PCE price index experienced a year-on-year increase of 4.1% in May. Markets reduce expectations for future ECB rate increases after cautious remarks from policymakers. The EUR/USD pair is experiencing a decline, trading at approximately 1.1365 during the early hours of Asian trading on Friday. The major stays close to a 13-month low as market expectations for US interest rate increases have escalated. Traders prepare for the upcoming release of the Michigan Consumer Sentiment Index report, scheduled for later on Friday.
US inflation saw an uptick in May, as the headline Personal Consumption Expenditures Price Index rose to 4.1% year-over-year, up from 3.3% in April. This figure surpassed 4.0% for the first time in three years, driven by the Middle East conflict which elevated energy prices, thereby maintaining the possibility of an interest rate increase from the Federal Reserve this year. Meanwhile, the core PCE, the Fed’s primary price gauge, increased by 3.4% year-over-year in May, compared to 3.3% previously. The annual core PCE reading reached its peak since October 2023. Financial markets have assigned a probability of approximately 63.4% for a rate increase by the Fed during the meeting scheduled for September 15-16, as indicated by the CME FedWatch tool.
Dovish remarks from the European Central Bank policymakers are impacting the shared currency. At its June policy meeting, the ECB increased its deposit rate by 25 basis points to 2.25%. ECB President Christine Lagarde stated on Monday that the central bank does not need to react aggressively to the spillovers from the Middle East conflict. Lagarde further stated that the inflation shock facing the Eurozone is significant enough to warrant attention, yet it has not reached a level that would elevate longer-term inflation.