EUR/USD depreciates to near 1.0550 due to caution surrounding the Fed’s policy outlook.

EUR/USD struggles as the US Dollar advances due to increasing caution surrounding the Fed’s rate cut decision in December.
The stronger US PCE data indicated a solid growth in consumer spending in October.
Eurozone HICP headline and core inflation are projected to show annualized increases in November.

EUR/USD edges lower to near 1.0550 during the Asian trading hours on Thursday. This downside of the pair could be attributed to the improved US Dollar (USD) amid the cautious mood surrounding the Federal Reserve’s (Fed) interest rate decision in December, following Wednesday’s robust inflation data. Markets may witness thin trading due to the US Thanksgiving holiday.

This latest US inflation report indicated solid growth in consumer spending for October, but it also highlighted a stagnation in progress toward lowering inflation, keeping the Fed on alert. The US Personal Consumption Expenditures (PCE) Price Index increased by 2.3% year-over-year in October, up from 2.1% in September. Meanwhile, the core PCE Price Index, which excludes volatile food and energy prices, rose by 2.8%, slightly higher than the 2.7% recorded the previous month.

According to the CME FedWatch Tool, futures traders are now pricing in a 68.1% chance that the Fed will cut rates by a quarter point in December, up from 59.4%, a day ago. Nonetheless, they anticipate the Fed leaving rates unchanged at its January and March meetings.

The Euro (EUR) faces a bearish outlook as European Central Bank (ECB) policymakers express concerns about the Eurozone’s current and future economic growth. A rate cut from the ECB in December appears highly likely, though the market remains divided on the expected size of the reduction.

Traders are now turning their attention to Friday’s release of the Eurozone Harmonized Index of Consumer Prices (HICP) inflation data. Preliminary figures for both headline and core inflation in November are projected to show annualized increases, which could heighten investor unease.