The euro held near 1.1664 on Wednesday, down 0.09% on the session, after trading in a tight band around 1.1660 during Asian hours and slipping toward 1.1650 in early Europe. The pair briefly extended losses to multi-day lows near 1.1650 following the July personal consumption expenditures (PCE) report and the second estimate of second-quarter GDP, which were released simultaneously at 12:30 GMT. It later stabilized around 1.1670.
EUR/USD’s recent advance stalled at the 1.1710 reference high, set on August 19 when the pair decisively broke above the neckline of an inverted complex head-and-shoulders pattern following dovish Federal Open Market Committee (FOMC) minutes. That level marked the highest print since May 14—a six-month peak—and the pair has held within roughly 60 pips of it for six consecutive sessions without extending further. Over the past month, the pair has gained 2.60%, rising from consolidation under 1.1550 on August 1 to the August 19 breakout through the weekly pivot at 1.1650 and the monthly R2 at 1.1671. Over the past 12 months, the gain narrows to 0.14%, underscoring that the bulk of the 2026 move occurred within a four-week window.
According to the analysis, EUR/USD is no longer driven primarily by broad dollar weakness. Instead, the pair has become the first genuine two-sided policy-convergence trade of 2026, with the euro having already captured most of the potential gains from reduced policy divergence. The setup is symmetrical in a way not seen for much of the year: the European Central Bank (ECB) has a September rate hike nearly fully priced after lifting its deposit facility rate to 2.25% in June, while the probability of a Fed hike in September has fallen from 67% earlier this month to 38.4%, with money markets still pricing a fully anticipated hike by December.
The symmetry helps explain why 1.1710 capped further gains. A rally predicated on the Fed becoming less hawkish loses momentum once Fed hawkishness stops declining. The July PCE report—headline at 3.7% year over year versus a 3.6% consensus—was the first data point in three weeks to push Fed pricing in the opposite direction. The U.S. Dollar Index firmed 0.13% to 99.03 on the release, while EUR/USD retreated to near 1.1650. GBP/USD also slipped below 1.3650, though it remained within striking distance of its own six-month high. Treasury yields rebounded across the curve.
The PCE report showed the headline index rose 0.2% month over month and held at 3.7% year over year, above consensus, while core PCE matched expectations at 3.3%. Personal income climbed 0.4% against a 0.3% estimate, and personal spending rose 0.2%, though real consumption adjusted for inflation was flat. The personal saving rate increased to 3.0% from a four-year low of 2.6%. Goods prices fell 0.1% on the month, dragged by a 2.7% decline in gasoline and other energy-related goods and a 0.9% drop in furnishings, while services rose 0.3%, led by a 1.2% increase in financial services and insurance and a 0.3% gain in housing. Services inflation, the stickiest and least rate-sensitive component, carried the entire print.
The second estimate of Q2 GDP confirmed real growth at 1.5% annualized, unchanged from the advance reading. Within the data, the quarterly PCE price index was revised up by 0.2 percentage point to 5.3%, and core was revised up by 0.2 point to 3.6%. Corporate profits from current production increased by $400.9 billion, compared with $74.4 billion in Q1. July durable goods orders rose 1.1% month over month to $339.3 billion, more than double the 0.5% estimate.
The modest FX reaction reflected the in-line core reading. An upside surprise in core inflation would have forced a repricing of September hike odds and potentially pushed EUR/USD through 1.1632. Core inflation holding at 3.3% for a fourth consecutive month—3.3% in April, 3.4% in May, 3.3% in June, and 3.3% in July—gives the Fed room to pause and leaves the euro supported by its technical cluster.
