EUR/USD gains as the latest US PCE inflation data aligns with expectations, easing concerns over unexpected US inflation spikes.
A slight increase in US Treasury yields could help limit the downside of the US dollar.
Traders look to the Eurozone HICP inflation data for further direction ahead of Thursday’s ECB policy decision.
EUR/USD pauses its three-day losing streak, trading around 1.0410 during Asian hours on Monday. The pair’s recovery is driven by a weaker US Dollar (USD) following the release of January’s Personal Consumption Expenditures (PCE) inflation data on Friday, which aligned with forecasts and eased concerns about unexpected inflation spikes in the United States (US).
The US PCE inflation report met expectations, with the monthly headline PCE holding steady at 0.3%. Core PCE rose slightly to 0.3% from December’s 0.2%, while the annual headline PCE stood at 2.6%, slightly exceeding projections but unchanged from December’s figure. Core PCE eased to 2.6%, down from a revised 2.9% in December.
The US Dollar Index (DXY), which tracks the USD against six major currencies, weakens after three consecutive sessions of gains, hovering around 107.30 at the time of writing. However, the downside of the Greenback could be limited as US Treasury yields improve, with 2-year and 10-year Treasury yields currently standing at 4.02% and 4.24%, respectively.
Meanwhile, escalating US-China trade tensions could support safe-haven flows into the US Dollar, potentially capping EUR/USD’s gains. Over the weekend, US President Donald Trump announced an additional 10% tariff on Chinese imports starting Tuesday, adding to the initial 10% rate imposed last month. On Thursday, Trump also stated on Truth Social that 25% tariffs on Canadian and Mexican goods will take effect on March 4.
The Euro (EUR) gains strength against its peers following stronger-than-expected February flash Harmonized Index of Consumer Prices (HICP) data from Germany, released on Friday. Despite the hotter inflation report, the European Central Bank (ECB) is expected to continue easing monetary policy in its meeting on Thursday. Investors now await the Eurozone’s HICP inflation data, set to be released later in the day.
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