US inflation, PCE data and Fed policy take centre stage as the dollar recovers. Read the latest GBP, EUR, USD and AUD market update and key FX drivers.
Key Highlight
- GBP: Sterling remains relatively subdued as markets look for a fresh catalyst to drive the next move.
- EUR: Signs of improving growth in Germany are encouraging, although the euro has yet to respond meaningfully.
- USD: US PCE inflation is the focus today, with the data likely to influence expectations around the Federal Reserve’s next move.
- AUD: Australian inflation was significantly stronger than expected, increasing expectations of a September rate hike to 40%.
Market Recap
The US dollar regained some ground yesterday as markets continued to assess developments in the Middle East. The US announced fresh sanctions against 60 Iranian entities, prompting China to warn that it could take “all necessary measures” in response.
Risk sentiment improved later in the European session following reports that Pakistan had presented Iran with a proposal aimed at ending the US military blockade and lifting sanctions. The development supported riskier assets and contributed to a sharp decline in oil prices.
The euro remained under pressure despite stronger than expected German GDP and economic sentiment data, as investors turned their attention towards today’s key US economic releases.
Meanwhile, Australian inflation surprised significantly to the upside overnight, pushing market expectations for a September rate hike to 40%.
Market Overview
Attention now turns to the US PCE inflation report, the Federal Reserve’s preferred measure of inflation. The release has taken on greater importance following the US Treasury’s announcement that it plans to double its purchases of longer dated bonds. This has helped stabilise Treasury yields just below multi year highs.
The US Q2 GDP figures are also due today. However, as the data reflects economic activity from the previous quarter, it is unlikely to have a significant impact on markets unless there is a major surprise.
The bigger potential catalyst comes on Friday, when Fed Chair Warsh is due to deliver a keynote speech at the Jackson Hole Symposium. Investors will be watching closely for any indication of the Fed’s outlook for interest rates and inflation, which could provide a clearer direction for the dollar and wider currency markets.
26th August 2026
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