US Core PCE Inflation Holds at 2.9% in July, Markets Eye Fed’s September Decision

The latest data from the US Bureau of Economic Analysis (BEA) shows that annual inflation in the United States, measured by the Personal Consumption Expenditures (PCE) Price Index, remained steady at 2.6% in July 2025, in line with expectations.

Core PCE Inflation Steady but Sticky

The core PCE Price Index—the Federal Reserve’s preferred inflation gauge that excludes food and energy—climbed 2.9% year-over-year, a slight uptick from June’s 2.8%. On a monthly basis, headline PCE rose 0.2%, while core PCE advanced 0.3%, reflecting persistent price pressures.

Other details of the report showed:

• Personal Income increased 0.4% in July.
• Personal Spending grew 0.5%, signaling steady consumer demand despite inflation concerns.

Market Reaction: Dollar Steady, Traders Cautious

The immediate market response was muted, with the US Dollar Index (DXY) trading around 98.05, up 0.15% on the day. Despite the inflation data aligning with forecasts, investors remain cautious ahead of the Federal Reserve’s September policy meeting.

According to the CME FedWatch Tool, markets are pricing in an 87% probability of a 25 basis-point interest rate cut next month.

Fed Independence Under Spotlight

Adding to market uncertainty, concerns over the Federal Reserve’s independence resurfaced after President Trump announced the dismissal of Fed Governor Lisa Cook, a move seen as unprecedented in the Fed’s 111-year history. Cook has rejected the decision and signaled plans for legal action, further fueling investor uncertainty.

EUR/USD Outlook: What’s Next?

Analysts suggest that a stronger-than-expected core PCE print (0.5% or higher) could trigger renewed US Dollar strength, weighing on the EUR/USD pair. Conversely, softer readings may encourage further dollar weakness, lifting the euro toward key resistance levels near 1.1800.

Technical indicators show EUR/USD trading sideways, with the Relative Strength Index (RSI) hovering just above 50, highlighting a lack of clear momentum.

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