US core PCE inflation set to rise in August, pressuring the Federal Reserve

• The core Personal Consumption Expenditures Price Index is forecast to rise 0.3% MoM and 3.4% YoY in August.
• Headline annual PCE inflation is expected to remain stable at 3.7%.
• EUR/USD is bearish near 2026 lows ahead of the critical data release.

The United States (US) Bureau of Economic Analysis (BEA) will publish the Personal Consumption Expenditures (PCE) Price Index data for August on Wednesday at 12:30 GMT. Market participants closely watch the PCE Price Index because it is the Federal Reserve’s (Fed) preferred measure of inflation and could influence its policy outlook.

PCE inflation: Insights into the Federal Reserve's key inflation metric

Market participants anticipate that the core PCE Price Index, which excludes volatile food and energy prices, advanced 0.3% month-over-month (MoM) in August, following the 0.2% increase recorded in July, while the annualized reading is foreseen at 3.4%, slightly higher than the 3.3% posted in the previous month.

As previously noted, PCE inflation data is critical as it’s the Fed’s preferred inflation gauge and will help market participants move bets on whatever the central bank may do in the last two meetings of the year. It’s worth remembering that policymakers delivered a 25 basis points (bps) interest rate hike when they met in September, the first one in three years, to a target range of 3.75%–4.00% in a unanimous decision.

The hike explains itself: the Middle East war maintains energy prices upward, pressuring the cost of living, while PCE inflation hit 4% in early 2026, doubling the central bank’s goal. Sure, inflationary pressures have receded from that level, but they are still far from the comfortable 2%.

At the same time, crude Oil prices are roughly 50% higher than pre-war, while the conflict is far from resolving and has become a regional crisis with more and more countries involved. On a positive note, Oil flows through the Strait of Hormuz recovered to about 80% of pre-war levels in September, despite continued military tensions in the region.

The risk of an escalation, however, remains high and market participants are far from pricing in easing energy prices in the foreseeable future. That means inflation is likely to hold above the preferred 2% and hence, result in some Fed action to tame it.

Ahead of the PCE Price Index release, market participants expect interest rate hikes both in October and December, according to the FedWatch Tool. The odds for an October hike stand at 72.5% at the time of writing.

Generally, a higher-than-anticipated PCE Price Index result should boost the odds for upcoming rate hikes, increasing demand for the US Dollar (USD). A reading in line with the market’s expectation should have a limited impact on prices, yet maintain the USD on its bullish route. On the contrary, a lower-than-anticipated outcome should put some pressure on the Greenback, at least temporarily.

How will the Personal Consumption Expenditures Price Index affect EUR/USD?

As the release approaches, the US Dollar Index (DXY) trades not far below its yearly peak at 101.80, maintaining its positive momentum as investors bet on higher interest rates while seeing no easy way out of the Middle East conflict.

Valeria Bednarik, Chief Analyst at FXStreet, notes: “The EUR/USD pair trades in the 1.1350 price zone, with a clear bearish bias and without signs of downward exhaustion. The pair develops far below all its Simple Moving Averages (SMAs), while the 20-day SMA crosses below an also bearish 100-day SMA, usually a sign of strong selling interest. At the same time, technical indicators maintain their downward slopes well into negative territory, also reflecting sellers’ control.”

Bednarik adds: “June monthly low at 1.1324 provides immediate support ahead of the 1.1200 price zone, where the pair topped between August and September 2025 multiple times. Once below the area, the case for additional declines will strengthen. Resistance can be found at 1.1400, while additional gains expose a long-term static area around 1.1470. Sellers are likely to reappear around the latter if reached, limiting any additional bullish potential.”