What's next for the U.S. dollar? With a key month-end decline, all eyes are on today's inflation reports.

Key Takeaway:

•             August is shaping up to be a challenging month for the U.S. dollar, as it loses ground.

Market Recap

The U.S. dollar saw a brief rebound on Thursday, finding support in economic data that painted a picture of continued resilience. Reports showed a stronger-than-expected upward revision to U.S. GDP growth and a decline in new unemployment claims.

However, political developments at the Federal Reserve cast a shadow over this positive news.

• Political Influence at the Fed: The potential fast-tracking of a new Trump nominee, Stephen Miran, to the Federal Reserve Board ahead of the September policy meeting raises concerns about the Fed's independence and its ability to maintain its inflation-fighting mandate.
• Signals for Rate Cuts: In a separate development, Fed Governor Christopher Waller voiced his support for a 25-basis point rate cut at the upcoming meeting and indicated a willingness for further cuts in the coming months.

This recap highlights the ongoing tension between political pressures and the central bank's monetary policy decisions. 

Today's Overview:

Today is a key day for market watchers, with major inflation figures being released from Europe and the U.S. These numbers could have a significant impact on the euro (EUR) and the U.S. dollar (USD).

European Inflation (CPI)

We will first see inflation data from France and Germany. After a recent decrease in the likelihood of further rate cuts by the European Central Bank (ECB), a lower-than-expected inflation print would be needed to reignite speculation for another cut this year. A surprisingly soft number could put pressure on the euro.

U.S. Inflation (Core PCE)

The afternoon brings the highly anticipated Core PCE inflation data from the United States. This is the Federal Reserve's preferred measure of inflation.

What markets are expecting: The current market consensus is for a slight increase in price pressures.

 What this means:

• If the number is as expected or higher: A strong inflation reading could support the U.S. dollar, as it would reinforce the view that the Federal Reserve may not be in a hurry to cut interest rates. 
• If the number is softer than expected: This would likely be a negative for the U.S. dollar. A weaker-than-anticipated inflation report could lead to a rally for both the British pound (GBP) and the euro (EUR) against the dollar, potentially pushing both pairs toward their recent August highs.

 29th August 2025

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