The Euro (EUR) trims part of its earlier losses against the US Dollar (USD) on Friday as traders digest the latest US economic data. At the time of writing, EUR/USD is trading around 1.1472 after touching an intraday low near 1.1433, its weakest level since August 2025.
The US Personal Consumption Expenditures (PCE) Price Index rose 0.3% MoM in January, in line with market expectations and unchanged from December. On an annual basis, the PCE Price Index increased 2.8% YoY, slightly below the 2.9% forecast and the previous reading of 2.9%.
The core PCE Price Index, the Federal Reserve’s (Fed) preferred inflation gauge, rose 0.4% MoM in January, matching both market expectations and the pace recorded in December.
On an annual basis, Core PCE increased 3.0% YoY, coming in below the 3.1% forecast and unchanged from December.
The data suggests price pressures remain sticky, and renewed inflation concerns driven by rising Oil prices reinforce the view that the Fed may keep interest rates higher for longer.
Meanwhile, other US economic indicators pointed to signs of moderating activity. The second estimate of US Gross Domestic Product (GDP) showed the economy expanding at an annualized rate of 0.7% in the fourth quarter, missing the 1.4% forecast and revised down from the previous estimate of 1.4%.
US Durable Goods Orders fell 1.4% in January, following a revised 0.9% decline in the previous month (revised from -1.4%). Personal Income rose 0.4% MoM, slightly below the 0.5% forecast but higher than the 0.3% increase recorded in December. Personal Spending also increased 0.4%, beating expectations of 0.3% and matching the previous reading.
In reaction to the data, the US Dollar eased somewhat, though the downside remains limited as cautious market sentiment driven by escalating tensions in the Middle East continues to support the Greenback. The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, is trading around 100, its highest level since November 2025.
At the same time, the conflict is fueling inflation concerns as Oil prices remain elevated, prompting traders to trim Fed rate-cut bets and providing additional support to the US Dollar. While traders have also fully priced in a European Central Bank (ECB) rate hike by July, the Euro has failed to draw meaningful support as the risk of Oil supply disruptions weighs on the economic outlook for Europe, a major net importer of energy.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.