EUR/USD strengthens above 1.1650 ahead of US PCE inflation data

• EUR/USD gains traction near 1.1680 in Friday’s Asian session.

• Traders will take more cues from the key US PCE inflation data later on Friday. 

• Reuters poll indicates the majority of economists surveyed expect ECB to hold interest rates steady until at least December 2025.

The EUR/USD pair recovers some lost ground around 1.1680 during the Asian trading hours on Friday, bolstered by a weaker US Dollar (USD). Markets might turn cautious later in the day ahead of the key US August Personal Consumption Expenditures (PCE) Price Index report. 

Traders continue to assess mixed signals from Federal Reserve (Fed) policymakers. Kansas City Fed President Jeffrey Schmid stated that the US central bank may not need to lower interest rates again soon, citing the need to keep bringing down inflation. Meanwhile, Chicago Fed President Austan Goolsbee noted that he was not eager to do a lot more policy easing while inflation is above target and moving the wrong way. 

The attention will shift to the US consumer spending data for signals of how urgently the economy needs an additional rate cut from the Fed. Markets are now pricing in nearly an 87.7% odds of a 25 basis points (bps) rate cut in the October meeting, down from a 90%-92% possibility on Wednesday. Any signs of hotter inflation could dampen the case for Fed rate cuts and underpin the Greenback, which creates a headwind for the major pair. 

Across the pond, a significant majority of economists surveyed expected the European Central Bank (ECB) to keep rates unchanged for the remainder of the year, according to a Reuters poll. Rising expectations that the ECB is done cutting rates could support the shared currency against the USD. However, some financial institutions anticipate further cuts later this year or in early 2026 if conditions warrant.