Euro finds support as softer US PCE data prompts traders to trim Fed rate-hike bets

• EUR/USD holds firm as softer US inflation weighs on the US Dollar.

EUR/USD holds modest gains on Wednesday as traders assess the latest economic data from both sides of the Atlantic. At the time of writing, the pair trades around 1.1363, up 0.20% on the day, after touching 1.1312 on Tuesday, its lowest level since May 2025. Despite the modest recovery, EUR/USD remains on track to end September in negative territory.

Softer-than-expected US inflation data weighs on the US Dollar (USD) as traders trim bets on another Federal Reserve (Fed) interest-rate hike in October. The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, trades around 101.20 after reaching a two-month high of 101.61 on Tuesday.

The core Personal Consumption Expenditures (PCE) Price Index rose 0.2% MoM in August, below the 0.3% forecast. Headline PCE inflation increased 0.3%, also falling short of expectations of 0.4%. On an annual basis, core and headline inflation held steady at 3.0% and 3.4%, respectively, both below market expectations.

Markets now see around a 37% chance that the US central bank will raise interest rates next month, down from approximately 70% earlier this week, according to the CME FedWatch Tool.

However, other data pointed to resilience in the US economy, limiting the Greenback’s decline. Second-quarter Gross Domestic Product (GDP) growth was revised sharply higher to an annualized rate of 2.2% from 1.5%, supported by firm consumer spending and business investment. The ADP Employment Change report showed that the US private sector added 90K jobs in September, beating the 70K forecast and accelerating from 36K previously.

The stronger growth and labour figures give policymakers more room to focus on bringing inflation back to the 2% target, keeping the possibility of another Fed rate increase later this year alive. Attention now turns to Friday’s US Nonfarm Payrolls (NFP) report for further clues about the strength of the labour market.

On the European side, preliminary figures showed that inflation accelerated across the Eurozone’s largest economies in September, increasing pressure on the European Central Bank (ECB) to tighten policy further. Inflation rose to 3.3% in Germany, 3.4% in France and 4.1% in Italy, while Spain’s rate climbed to 5.0%. Traders now await the preliminary Eurozone inflation report on Friday for a clearer view of price pressures across the bloc.