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• Core PCE inflation remains under 3%, boosting the probability of Fed rate cuts to nearly 90% into year-end.
• Dovish Fed voices highlighted a fragile labor market, and Barkin warned that inflation and unemployment trends remain concerning.
• The euro steadied despite NATO–Russia tensions, as traders eyed US jobs data and upcoming Eurozone inflation prints.

The EUR/USD currency pair recovered on Friday. Following the latest release of the US inflation report, traders saw increased confidence that the Federal Reserve will potentially reduce interest rates by year-end. At the time of writing, the currency pair was seen trading at around 1.1697, up 0.27%.

Euro Eyed 1.1700 Level as Soften US Inflation Fueled Confidence in Further Monetary Easing

The week ended in a recovery mode for the shared currency after the US Bureau of Economic Analysis (BEA) reported that the Fed’s preferred inflation gauge, the core Personal Consumption Expenditures (PCE) Price Index, was aligned with estimates, but shy of the 3% threshold.

Following the announcement, bets on the Fed reducing borrowing costs increased from 84% the day before to 88%, as revealed by the Prime Market Terminal interest rate probability tool.

Federal Reserve officials crossed the wires recently. Fed Governor Michelle Bowman was dovish, as she said that the labor market is fragile and that, should the conditions deteriorate, they would need to adjust policy at a faster pace. Earlier, Richmond Fed Thomas Barkin said both inflation and unemployment are moving in the wrong direction, but the downside is limited.

In Europe, a scarce economic docket left traders adrift in geopolitics. Tensions in Europe seemed to weigh on the euro as NATO warned Russia that it is prepared to intercept Russian aircraft. According to Bloomberg, European officials privately told Russia they are ready to shoot down jets and view Russia’s Estonia incursion as deliberate.

Next week, the US schedule will feature a flurry of Fed speakers, US ADP National Employment Change, the ISM Manufacturing PMI, Initial Jobless Claims, and Nonfarm Payrolls for September.

Across the pond, the European schedule will feature Business Climate, Consumer Confidence, the Economic Sentiment Indicator, September inflation figures, and a flurry of ECB speakers. Also, traders should be wary of Flash PMIs and German inflation and Retail Sales.

Market Movers: The Euro Surged as US Core PCE Justified Fed Rate Cut Bets

• The US core Personal Consumption Expenditures (PCE) Price Index rose 2.9% year-over-year in August, matching forecasts and unchanged from July. Headline PCE edged up to 2.7% year-over-year from 2.6%, in line with projections.
• The University of Michigan’s final September Consumer Sentiment reading came in weaker than expected at 55.1 versus 55.4 anticipated. Inflation expectations eased slightly, with the one-year outlook slipping to 4.7% from 4.8%, and the five-year view falling to 3.7% from 3.9%.
• On the trade front, President Donald Trump announced new tariffs: 100% on pharmaceuticals, 50% on kitchen cabinets, bathroom vanities, and related products, 40% on upholstered furniture, and 25% on heavy trucks.
• In Europe, the ECB’s Consumer Expectations Survey showed households see inflation at 2.8% in one year. The five-year outlook ticked higher to 2.2% from 2.1%.

Technical Outlook: EUR/USD Pair Recovered and Meandered Around 1.1700

The EUR/USD currency cross ended the week on a lower note, yet it seemed to have found its feet at around the 1.1650 mark. After reaching the latter, the pair edged back towards the 1.1700 area, but failed to end the day/week above that price level.

The Relative Strength Index (RSI) remained bearish. This, and the EUR/USD's failure at the 1.1700 level, could clear the path for further downside.

The first support would be found at the 1.1650 figure, followed by the 1.1600 level. If cleared, the next support would be the 100-day SMA at the 1.1588 level. Conversely, if buyers could reclaim the 1.1700 mark, the next resistance would be at 1.1750, ahead of the 1.1800 mark.
 

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