USD faces pressure as markets await crucial PCE inflation data

The US dollar index has retreated 0.2% to 101.45 ahead of the Federal Reserve's preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, due later today. Markets are expecting core PCE to show a 2.8% year-over-year increase, potentially influencing the Fed's rate cut timeline. EUR/USD has edged higher to 1.1095, while USD/JPY slipped to 146.20 as traders reduce dollar exposure before the key data release. The heightened anxiety reflects uncertainty about whether inflation is cooling sufficiently for the Fed to begin easing monetary policy in September. Technical indicators show the dollar index testing support at 101.30, with resistance at 101.80. A PCE reading above expectations could strengthen the dollar and push back rate cut expectations, while a softer print might accelerate the recent dollar weakness across major pairs.