Euro softens to near 1.1355 as Fed hike bets rise ahead of PCE

The euro weakened to around 1.1355 against the US Dollar (USD) in early Asian trade on Thursday, slipping to its lowest level since June 2025 as market participants increased bets on additional US interest rate hikes later this year ahead of the US PCE inflation release.

Implications for Fed expectations, Treasury yields and the US Dollar

Markets are placing greater emphasis on the US PCE inflation release — the Fed's preferred inflation gauge — as a key input for policy expectations. A PCE print that reinforces expectations of firmer inflation may leave Fed policy expectations more hawkish, and market pricing of US interest rate paths may remain sensitive to the outcome. Movements in US Treasury yields are likely to react to any revision in rate expectations, and the US Dollar may be influenced by shifts in yield dynamics and Fed messaging.

Why this development matters for currency traders and key pairs

For forex market participants, the run-up to the PCE release is a focal point because the data can sway expectations about the timing and extent of Fed action. EUR/USD is already trading near its weakest level since June 2025 as traders reassess the outlook for US rates. GBP/USD and USD/JPY are among other pairs that may be influenced as markets reinterpret global rate differentials and safe-haven flows tied to Treasury yields. The reaction will depend on the PCE outcome and subsequent market interpretation of how the Fed may respond.

Markets will monitor the US PCE inflation release closely, along with any follow-up commentary and movements in US Treasury yields, as they work to reassess Fed policy expectations and the implications for the US Dollar and major FX pairs.