By Felipe Barragán, Expert Research Strategist at Pepperstone
September 27, 2025 –
“The dollar lost ground on Friday after the release of the Fed’s preferred inflation gauge, with the latest PCE figures reinforcing the view that while inflation remains above target, it is not accelerating fast enough to derail the easing narrative. Headline PCE rose 0.3% in August, while core prices advanced 0.2%, exactly in line with forecasts. On a year-over-year basis, headline inflation came in at 2.7% and core at 2.9%, steady rather than alarming. The figures were enough to keep the dollar under pressure, as investors judged there was no reason for the Fed to abandon its gradual path toward rate cuts.
The reaction underscores a subtle shift in sentiment. Earlier in the week, a stronger-than-expected GDP revision and firm labor data had propped up the dollar on the idea that the Fed might stay cautious. But with PCE matching expectations and showing no renewed flare-up in price pressures, traders are leaning back toward the dovish side. Futures markets continue to price in at least two additional cuts by year-end, and today’s data offered little resistance to that view.
In short, the greenback’s pullback today reflects relief that inflation has not reignited. The broader outlook remains data-dependent, but unless labor market indicators turn sharply weaker, the dollar is more likely to drift than collapse. For now, the PCE print has given investors cover to reduce dollar exposure, while keeping an eye on next week’s labor reports that could quickly reshape expectations again.”