EUR/USD steadies above 1.1660 as US PCE data matches expectations

• EUR/USD trades under pressure on Friday but holds steady above 1.1660 after US PCE data matches expectations.
• US core PCE Price Index rises 0.3% MoM, 2.9% YoY, the highest since February.
• Headline PCE increases 0.2% MoM, yearly rate holds steady at 2.6%.

The Euro (EUR) is trading under pressure against the US Dollar (USD) on Friday, edging lower in early dealings before steadying around 1.1660 after the US July Personal Consumption Expenditures (PCE) inflation report came broadly in line with expectations.

According to the Bureau of Economic Analysis, the Core PCE Price Index rose 0.3% Mom in July, matching forecasts and unchanged from June's pace. On an annual basis, core inflation ticked up to 2.9% from 2.8%, its highest level since February. The headline PCE Price Index increased 0.2% MoM, matching expectations, still slightly softer than June's 0.3%, while the yearly rate held steady at 2.6%.

The accompanying data also showed resilience in household demand. Personal spending rose 0.5% in July, beating the expected 0.3% and marking a firm pick-up from June's 0.3% increase. Personal income rose 0.4% month-over-month, in line with forecasts and surpassing the prior 0.3% increase, providing further support for consumption trends.

Despite sticky inflation pressures and robust consumer spending, the market's reaction remains muted, with the US Dollar Index reclaiming ground near the 98.00 level. The muted reaction keeps EUR/USD consolidating near 1.1660, with the single currency struggling to recover as resilient US spending data underpins the US Dollar. Still, the pair is set to close August with gains of around 2%, underscoring the broader weakness in the Greenback.

The latest PCE data highlight the Federal Reserve's balancing act. Persistent core inflation, partly influenced by tariffs and services prices, underscores that price pressures remain elevated above the Fed's 2% target. At the same time, hiring momentum continues to slow, signaling that economic conditions are softening. This combination keeps alive expectations of a 25 basis point rate cut in September, limiting the US Dollar's upside in the near term.