Euro rebounds from intraday lows as US Dollar loses momentum after PCE data
- EUR/USD rebounds as softer US PCE inflation data pressures the US Dollar.
- Lingering uncertainty surrounding the US-Iran war helps limit downside in the USD.
- Rising Oil prices linked to Middle East tensions continue to cloud the inflation outlook.
EUR/USD trims earlier losses on Thursday as traders digest a slew of US economic data that eases demand for the US Dollar (USD) despite heightened geopolitical tensions in the Middle East. At the time of writing, the pair is trading around 1.1655, rebounding from an intraday low of 1.1586.
The Euro (EUR) is benefiting from a softer Greenback, with price action largely driven by US Dollar dynamics and ongoing headlines surrounding the US-Iran war.
The core Personal Consumption Expenditure (PCE) Price Index, the Federal Reserve’s (Fed) preferred inflation gauge, rose 0.2% MoM in April, below market expectations and down from the 0.3% increase recorded in March. On a yearly basis, the Core PCE climbed to 3.3% from 3.2% in March, matching analyst forecasts.
While the data showed inflation remains well above the Fed 2% target, the softer monthly reading offered some relief to markets and weighed on the US Dollar, as traders viewed it as a sign that underlying inflation pressures remain contained for now.
The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, is trading around 99, easing after hitting a seven-week high of 99.54 earlier in the day.
Additional data showed the US economy expanded at an annualized rate of 1.6% in the first quarter of 2026, up from 0.5% in the previous quarter but below the 2% growth estimated in the advance reading.
Initial Jobless Claims rose to 215K in the latest week, above market expectations of 211K and higher than the previous week’s 210K reading. Durable Goods Orders rose 7.9% in April, beating forecasts and rebounding sharply from the previous 1.3% decline.
On the geopolitical front, traders remain cautious about the chances of a US-Iran peace deal after both sides reportedly exchanged fresh attacks in the Middle East.
However, Axios reported on Thursday that the US and Iran have reached a preliminary 60-day agreement to extend the current truce, though the deal still awaits final approval from US President Donald Trump.
The lingering geopolitical uncertainty could help limit downside in the US Dollar while keeping Oil prices elevated. Rising crude prices are keeping inflation risks in focus, increasing the likelihood that major central banks, including the Federal Reserve (Fed) and the European Central Bank (ECB), may need to maintain restrictive monetary policy for longer.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.