The Euro (EUR) weakened to approximately 1.1355 against the US Dollar (USD) during early Asian trading hours on Thursday, marking its lowest level since June 2025. This decline comes as traders increase their bets on further US Federal Reserve (Fed) interest rate hikes later this year, with the upcoming US May Personal Consumption Expenditures (PCE) inflation data seen as a key catalyst for market direction [1].
Market expectations for Fed policy have shifted notably, with the probability of a 25-basis-point rate hike at the July meeting rising to 34.2%, up from 8.5% a week ago, and the odds for a September hike climbing to 66.4% from 29.1%, according to the CME FedWatch tool [1]. Eugene Epstein, head of trading and structured products at Moneycorp, commented, "The dollar's strength right now, at the end of the day, it's still hawkishness, if you look at Fed expectations with Fed funds futures right now, they are some of the highest odds that we've seen in a while" [1].
The headline PCE inflation for May is expected to show a year-over-year increase of 4.1%, up from 3.8% in April, while core PCE inflation is projected to rise to 3.4% from 3.3% in the same period [1]. These anticipated inflation readings are fueling expectations of a more aggressive Fed, which is supporting the US Dollar and pressuring the Euro.
On the European side, easing tensions between the US and Iran have contributed to lower oil prices, which in turn have raised expectations that the European Central Bank (ECB) may adopt a more dovish stance. The ECB recently raised its key interest rates by 25 basis points earlier this month, despite a slowing economy, in an effort to combat inflation driven by the oil price shock amid the Iran war [1]. However, the prospect of a more dovish ECB could further weigh on the Euro in the near term.
CONCLUSION
The Euro's decline to near 1.1350 reflects heightened market expectations for US Fed rate hikes, driven by anticipated strong PCE inflation data. With the ECB potentially turning more dovish amid easing oil prices and a slowing economy, the EUR/USD pair faces continued downward pressure in the short term.