EUR/USD traded close to flat on Thursday, with technicals continuing to signal downside risks. However, long-positioned investors found some relief in the latest U.S. inflation data. May PCE figures — both core and headline on a year-over-year basis — met estimates, while the month-on-month headline reading came in softer than expected. This was enough to shift sentiment in rates markets.

U.S. Treasury yields reversed earlier gains and moved lower on the session, with the 2-year yield hitting a 5-session low and erasing nearly 75% of the rally that followed Fed Chair Kevin Warsh's press conference the prior week. March 2027 SOFR

futures, a proxy for the Fed's terminal rate, extended their rally away from structural support, reflecting reduced expectations for further Fed rate hikes. Meanwhile, U.S.-German 2-year yield spreads tightened, narrowing the dollar's yield advantage over the euro.

Adding to the tentatively positive backdrop for EUR/USD, gold and silver both turned positive following the PCE release — a signal that U.S. interest rates and the dollar may be poised to soften.

That said, bulls will need additional catalysts to reverse the pair's broader downtrend. Attention now turns to U.S. June CPI and PPI, due July 14 and 15 respectively, ahead of the Fed's July 28-29 meeting. Cooler-than-expected inflation in those reports could weigh on the dollar and U.S. rates, potentially driving EUR/USD higher.
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(Christopher Romano is a Reuters market analyst. The views expressed are his own)