July 2025 Core PCE Inflation Peaks at 2.9%: Impact on Markets and Monetary Policy

The US core PCE price index rose to 2.9% in July 2025, its highest level in five months. This increase has impacted Treasury yields and cryptocurrencies like Bitcoin and Ethereum, signaling potential Federal Reserve policy adjustments. Historically, core PCE surges often precede tighter monetary policies, which could enhance volatility in risk assets, including cryptocurrencies.

The US core Personal Consumption Expenditures (PCE) price index rose to 2.9% in July 2025, marking its highest level in five months. This significant increase has sparked discussions about potential Federal Reserve policy adjustments and its impact on various financial markets, including Treasury yields and cryptocurrencies like Bitcoin and Ethereum [1].

The PCE index, which is the Federal Reserve's preferred measure of inflation, has been closely watched by market participants. The core PCE, which excludes volatile food and energy prices, advanced 0.3% month-over-month (MoM) in July, the same pace as seen in June. Over the last twelve months, core PCE inflation rose to 2.9% from 2.8% in June. Meanwhile, the headline annual PCE inflation remained unchanged at 2.6% [1].

The Federal Reserve's policy rate is expected to be cut by 25 basis points in September, as markets anticipate a dovish stance from the central bank. Fed Chairman Jerome Powell acknowledged that downside risks to the labor market were rising and that the inflation effects of tariffs were likely to be short-lived [1].

The increase in the core PCE price index has led to a surge in Treasury yields, with the yield on the 10-year Treasury note rising to 3.25%. This move has been attributed to the expectation of tighter monetary policy in response to the higher inflation rate. Additionally, cryptocurrencies such as Bitcoin and Ethereum have experienced increased volatility. Bitcoin's price has fluctuated between $30,000 and $35,000, while Ethereum has traded between $2,000 and $2,500 [1].

Historically, core PCE surges often precede tighter monetary policies, which could enhance volatility in risk assets, including cryptocurrencies. Investors are closely monitoring the upcoming PCE inflation report, scheduled for release on Friday at 12:30 GMT. The report is expected to provide further insights into the Federal Reserve's policy outlook and its impact on financial markets [1].

EUR/USD has shown a neutral stance after weakening against its rivals in the immediate reaction to Powell's remarks. The monthly core PCE figure will hold utmost relevance as it is not distorted by base effects. However, the market reaction could remain short-lived, with Powell's speech diminishing the surprise factor. A reading of 0.5% or higher in this data could trigger a USD rally and weigh on EUR/USD, while a print of 0.2% or lower could have the opposite impact on the pair's action [1].

Eren Sengezer, European Session Lead Analyst at FXStreet, shares a brief technical outlook for EUR/USD. The Relative Strength Index (RSI) indicator on the daily chart moves sideways slightly above 50, and EUR/USD fluctuates at around the 20-day and the 50-day Simple Moving Averages (SMAs), pointing to a lack of directional momentum. The lower limit of an ascending regression channel coming from January forms an immediate support at 1.1600 (static level, round level) before 1.1500 (100-day SMA) and 1.1400 (static level, round level). Looking north, 1.1800 (static level, round level) could be seen as the next resistance ahead of 1.1950 (mid-point of the ascending channel) [1].

Investors and financial professionals are advised to stay tuned to the upcoming PCE inflation report and the Federal Reserve's policy decisions to understand the potential impact on various financial markets.

References:
[1] https://www.mitrade.com/insights/more/inflation/fxstreet-USDOLLARF-202508291453