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Euro Under Pressure by US Economic Strength, Spotlight Shifts to Upcoming PCE Report

Euro Under Pressure by US Economic Strength, Spotlight Shifts to Upcoming PCE Report

End of Week Roundup for Our Funded Traders

Key Takeaways

  • The euro braced for impact as the ECB preserved interest rates
  • Strong US GDP report shows consumer spending hasn’t pulled back

Euro Feels the Heat

The popular EUR/USD pair faced some downward pressure Thursday after reaching fresh weekly lows of $1.0525, before making a minor recovery to $1.0560 levels Friday morning. The euro weakened following the European Central Bank’s decision to leave interest rates on pause, while a strong Q3 US Gross Domestic Product print bolstered the dollar. The drop marked a 0.31% decline in the last 5 days for the widely traded pair. 

In the US, the third-quarter GDP report was published, yielding better-than-expected results and beating analysts’ 4.2% expectations. According to the print, the US economy expanded by 4.9% year-on-year, proving it stands strong in the face of “higher-for-longer” interest rates and the return of student loans. 

The results speak to a resilient dollar index, which saw an uptick to monthly highs of around 106.90 during Thursday’s session, before settling down around the 106.54 level Friday morning.

Thousands of miles away in Frankfurt, Germany, the European Central Bank (ECB) dovishly announced on Thursday that it would be keeping its three key interest rates unchanged. 

The rates for the main refinancing operations, marginal lending facility, and deposit facility will remain steady at 4.50%, 4.75%, and 4.00%, respectively. That being said, the euro seemed to falter at ECB President Christine Lagarde’s statement of a “weak” Eurozone economy.

Monthly Check-In

At 12:30 GMT on Friday, the Bureau of Economic Analysis will release both the headline Personal Consumption Expenditure (PCE) and Core PCE (which excludes food and energy) reports. Market analysts expect to see Core PCE rise 0.3% in September, and the same 0.3% growth is expected of headline PCE. This flagship data has the honor of being the Federal Reserve’s favorite gauge of inflation, with the print accounting for a broad measure of consumer behavior. 

All eyes will turn to the PCE report, as its results may play a role in altering the Fed’s sentiment on their key interest rate. According to the CME FedWatch tool, only 0.5% of polled participants believe that the Fed will change their interest rate at the next get-together, slated for Oct. 31st – Nov. 1st. That being said, Fed Chair Jay Powell did leave the light on for a further rate hike by December when speaking in New York last week. 

With the GDP and PCE reports serving as economic health indicators, it is important for traders to monitor the data releases. To that end, acting quickly and adapting your strategy to flow with the impact on the market will only stand to benefit you