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

The United States Bureau of Economic Analysis (BEA) will release core Personal Consumption Expenditures (PCE) inflation data for August on Wednesday, at 12:30 GMT. Core PCE inflation, which excludes food and energy prices, is anticipated to increase by 0.3% month-over-month (MoM) in August, following a 0.2% rise in July. The annualized rate is expected at 3.4%, slightly higher than the 3.3% in the previous month.

As core PCE inflation data is the Federal Reserve's preferred inflation gauge, it will influence market participants' bets on the central bank's actions during the remaining meetings of the year. Policymakers previously raised interest rates by 25 basis points (bps) in September, setting the target range for the Fed funds rate at 3.75%–4.00% in a unanimous decision.

The Middle East war has maintained high energy prices, contributing to inflationary pressures that have risen to 4% in early 2026, double the central bank's target. Although inflation has eased from this level, it is still far from the 2% target. Oil prices have risen by around 50% since the start of the conflict, and the situation remains volatile.

Despite some recovery in oil flows through the Strait of Hormuz, the risk of further escalation remains high, and market participants are not pricing in reduced energy prices soon. Consequently, inflation is expected to remain above the 2% target, potentially prompting further Fed rate hikes. Market participants expect interest rate hikes in October and December, with a 72.5% chance of an October increase according to the FedWatch Tool.

A higher-than-expected core PCE inflation reading would strengthen the US Dollar (USD), while a lower-than-expected outcome could weaken the Greenback. The EUR/USD pair currently trades near its yearly high of 101.80, with a bearish bias and no signs of downward exhaustion. Technical indicators show a strong downward slope, indicating sellers' control. If core PCE inflation falls below 2%, it may put downward pressure on the USD.