EUR/USD holds ground as weak US GDP clashes with firm inflation data

• EUR/USD holds modest losses as weak US GDP clashes with firm inflation data.
• US Q4 GDP slows sharply to 1.4%, missing expectations
• Core PCE inflation accelerates, keeping Fed easing bets in check.

The Euro (EUR) trades little changed against the US Dollar (USD) on Friday as investors digest the latest batch of US economic data. At the time of writing, EUR/USD hovers near 1.1763, recovering modestly from an intraday low of 1.1743, but remains on track for a weekly loss.

The pair struggles for clear direction as a weaker-than-expected US Gross Domestic Product (GDP) for Q4 contrasts with firmer-than-anticipated Personal Consumption Expenditures (PCE) inflation data.

Advance estimates showed the US economy grew at an annualized rate of 1.4% in Q4 2025, slowing sharply from 4.4% in the previous quarter and missing the 3.0% consensus forecast. However, the GDP Price Index held steady at 3.7%.

Meanwhile, inflation data reinforced the view that price pressure remains sticky. Core PCE, the Federal Reserve’s (Fed) preferred inflation gauge, rose 0.4% MoM in December, accelerating from 0.2% previously and beating expectations of 0.3%. On an annual basis, Core PCE climbed 3.0%, above the 2.8% prior reading and exceeding the 2.9% forecast.

Headline PCE inflation also firmed in December. The PCE Price Index rose 0.4% MoM, accelerating from 0.2% in November and exceeding the 0.3% consensus. The annual rate ticked higher to 2.9% from 2.8%.

The data briefly stirred short-term volatility in the US Dollar. The US Dollar Index (DXY), which measures the Greenback’s value against a basket of six major currencies, is hovering around the 98.00 mark after dipping to an intraday low near 97.80.

The soft growth print points to slowing economic momentum, while sticky inflation keeps the Fed’s cautious policy stance intact. Minutes from the Fed’s January monetary policy meeting, released earlier this week, showed policymakers remain concerned about persistent inflationary pressure, limiting the scope for near-term easing. Officials also noted that further rate hikes could be warranted if inflation fails to move sustainably toward the 2% target.

However, the data did little to materially shift market expectations, with traders continuing to price in two rate cuts later this year. According to the CME FedWatch Tool, the first reduction in borrowing costs is still largely anticipated in June.

Traders now await the preliminary S&P Global Purchasing Managers Index (PMI) readings, along with the University of Michigan (UoM) Consumer Sentiment Index and inflation expectations data due later in the American session.