Euro stabilizes near 13-month lows against the US Dollar after in-line US inflation data

• EUR/USD steadies as the US Dollar eases after US PCE data broadly meet expectations
• Markets trim September Fed rate-hike bets after the inflation report.
• Strong US GDP and labor market data continue to support a higher-for-longer Fed outlook.

EUR/USD recovers from intraday lows on Thursday as traders digest a heavy batch of US economic data. At the time of writing, the pair trades around 1.1362, staging a rebound from thirteen-month lows reached on Wednesday.

Data from the US Bureau of Economic Analysis showed that the core Personal Consumption Expenditures (PCE) Price Index rose to 3.4% YoY in May from 3.3% in April. On a monthly basis, core PCE held steady at 0.3%. Meanwhile, headline PCE accelerated to 4.1% YoY from 3.8%, marking its highest annual reading since April 2023.

The in-line inflation data and stable core inflation readings prompted a modest pullback in the US Dollar (USD) after its recent rally to more than one-year highs. The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, traded around 101.50 after touching an intraday high of 101.75.

Markets pared expectations for a September Fed rate hike, with the probability easing to 62% from 67% before the release, according to the CME FedWatch Tool.

The final estimate showed the US economy expanded at an annualized pace of 2.1% in the first quarter, revised up from the previous estimate of 1.6%. Meanwhile, Initial Jobless Claims fell to 215,000 in the week ended June 20, below market expectations of 225,000 and down from the previous week's revised reading of 227,000.

The stronger GDP data, sticky inflation and a resilient labor market reinforced the view that the Fed can keep monetary policy restrictive for longer, or even raise interest rates if needed. That, in turn, could limit the downside in the US Dollar and cap any meaningful recovery in the Euro (EUR).