Euro Rises as Traders Trim Rate-Hike Bets Amid Softer US Inflation

The Euro has found support due to softer-than-expected US inflation data, which has led traders to trim bets on another Federal Reserve interest-rate hike in October. The EUR/USD pair is trading around 1.1363, up 0.20% on the day, after touching its lowest level since May at 1.1312 on Tuesday.

The US Dollar Index (DXY) has fallen to 101.20, down from a two-month high of 101.61 reached on Tuesday. The core Personal Consumption Expenditures (PCE) Price Index rose 0.2% MoM in August, below the forecasted 0.3%. Headline PCE inflation increased 0.3%, also falling short of expectations.

Markets now see around a 37% chance that the US central bank will raise interest rates next month, down from approximately 70% earlier this week. However, other data pointed to resilience in the US economy, limiting the Greenback's decline. The ADP Employment Change report showed that the US private sector added 90K jobs in September, beating the forecast of 70K.

The stronger growth and labour figures give policymakers more room to focus on bringing inflation back to the 2% target. Attention now turns to Friday's US Nonfarm Payrolls (NFP) report for further clues about the strength of the labour market.