The U.S. dollar’s major peers consolidated on Tuesday as markets positioned for Wednesday’s release of the July Core Personal Consumption Expenditures (PCE) price index, the Federal Reserve’s preferred inflation measure.
Consensus forecasts call for the core PCE to rise 0.2% month-over-month, matching the 3.3% annual pace recorded in June. If realized, the print would mark the 65th consecutive month that inflation has remained above the Fed’s 2% target, underscoring the persistence of underlying price pressures despite recent softening in headline CPI and PPI data.
The report, due at 8:30 ET, will be the final Core PCE reading before the Federal Open Market Committee’s September 16 policy meeting. According to CME FedWatch data, traders are assigning a 40% probability to a 25-basis-point rate hike at that gathering, with the odds sensitive to the inflation data’s strength.
Analysts note that service-sector prices, housing-related components and financial services will be critical in determining whether inflation is broadening or reflects temporary distortions. June’s real consumer spending, which rose 0.4%, will also be scrutinized for signs of sustained demand that could further complicate the Fed’s disinflation path.
The EUR/USD pair, the world’s most-traded currency cross, was little changed near 1.1660, holding above a prior resistance level that has since acted as support. The technical backdrop remains constructive, with the pair consolidating above both the 200-day moving average and an upward trend line established from late July lows.
The analysis suggests that an in-line or softer-than-expected core PCE reading would likely reduce immediate pressure on the FOMC to tighten policy, potentially lifting EUR/USD toward the 1.1700 area ahead of Fed Chair Kevin Warsh’s speech on Friday. Conversely, a stronger-than-anticipated print could reinforce expectations for a sooner-than-later rate hike, weighing on the pair and testing the bullish trend line support.
With inflation already testing the Fed’s credibility, Wednesday’s data release carries heightened significance despite its modest forecasted change, according to the analysis.
