EUR/USD hits multi-year highs as USD struggles despite hotter PCE print

The Euro (EUR) climbs for an eighth consecutive day against the US Dollar (USD) on Friday, as the Greenback remains under pressure amid a combination of political and economic headwinds. Renewed criticism of Federal Reserve (Fed) Chair Jerome Powell by US President Donald Trump, easing geopolitical tensions, and a string of mixed US economic data are fueling expectations of a Fed interest rate cut, which is weighing on the US Dollar.

EUR/USD is holding just slightly higher on the day—up 0.20%—and reached its highest level since September 2021 at 1.1754. At the time of writing, the pair is hovering around 1.1726 during the American session.

Meanwhile, the US Dollar Index (DXY) continues its descent, though price action is largely sideways on Friday, with the index finding a foothold just above the 97.00 mark following upbeat core Personal Consumption Expenditure (PCE) inflation figures.

The headline PCE price index rose 0.1% MoM in May, matching April’s pace and consensus forecasts. However, the core PCE index—closely monitored by the Fed—ticked up 0.2% on the month, outpacing expectations and prior readings. On a yearly basis, core PCE accelerated to 2.7% from a revised 2.6%, signaling sticky underlying inflation and complicating the Fed’s rate-cut calculus.

Still, markets largely shrugged off the inflation uptick, choosing instead to focus on the broader slowdown in economic activity. The US economy contracted 0.5% in Q1 2025—its first decline in three years—while consumer spending and personal income also showed signs of weakening. The combination of soft growth and political pressure on the Fed has strengthened the case for policy easing in the coming months.

European Central Bank (ECB) Governing Council member Klaas Knot struck a cautious tone on Friday, suggesting that the current interest rate—now viewed as neutral—is “a good place to be.” While he did not rule out the possibility of another rate cut, Knot emphasized that inflation risks are “two-sided,” and the ECB may “well need to keep rates on hold for some time.” His remarks underscore a data-dependent approach, reinforcing the view that the central bank is in no rush to ease further following its rate cut in June.

Reflecting this cautious stance, the swaps market continues to price in just one 25 basis point rate cut from the ECB over the next 12 months, with the policy rate expected to bottom out around 1.75%.

Looking ahead, EUR/USD traders will be watching next week’s Eurozone inflation flash data and US ISM Purchasing Managers Index (PMI) releases for further directional cues, with a sustained break above 1.1745 potentially opening the door toward the 1.1800 psychological barrier.