EUR/USD Rebounds from Two-Week Lows on Weaker US Dollar

The US Core Personal Consumption Expenditures (PCE) annual rate experienced a slowdown from 4.7% to 4.6% in May, as reported. This development had several notable impacts on the market dynamics, particularly with regards to the US dollar and the EUR/USD currency pair.

Following the release of the report, the US dollar exhibited a modest weakening. The decrease in the PCE rate contributed to this depreciation, as it indicated a slightly slower pace of inflation than expected. Consequently, the DXY (US Dollar Index) retreated from its weekly highs above 103.50 to hover around the 103.00 mark. This downward movement in the dollar index was primarily a response to the revised PCE figures.

Simultaneously, the EUR/USD pair, which had previously been trading near two-week lows, experienced a significant turnaround. The report on the US Core PCE rate acted as a catalyst for the pair's reversal, pushing it into positive territory for the day. The euro gained strength against the dollar, and the pair rebounded from its previous lows.

The rebound of the EUR/USD pair gained further momentum with the release of US consumer inflation data. As the figures were unveiled, the pair continued to climb, surpassing the 1.0880 level and reaching fresh daily highs. The weaker US dollar contributed to this upward movement, as it made the euro more attractive to investors.

The depreciation of the US dollar after the report also had broader implications for the financial markets. It led to an increase in prices for commodities and resulted in rising futures for US equities. This reaction was driven by the perception that a weaker dollar could benefit commodities, making them relatively more affordable, while also potentially boosting the competitiveness of US exporters.

In addition to the PCE report, the US Bureau of Economic Analysis also provided insight into other inflation measures. They reported that overall inflation, as measured by the change in the Personal Consumption Expenditures (PCE) Price Index, fell to 3.8% year-on-year in May, down from 4.3% in April. This figure came in below the market consensus of 4.6%. The Core PCE, which excludes volatile food and energy prices and is considered the Federal Reserve's preferred measure, experienced a similar decline from 4.7% to 4.6%.

Looking ahead, market participants will be closely monitoring the final estimate for consumer sentiment from the University of Michigan, as well as the release of the Chicago Purchasing Managers' Index (PMI). These indicators will provide further insights into the state of the US economy and may influence market sentiment and currency movements.