On Wednesday, August 26, 2026, the US dollar strengthened following the release of key US economic data that slightly raised expectations for a Federal Reserve interest rate increase ahead of the Jackson Hole symposium of central bankers.

The US Commerce Department reported that the Personal Consumption Expenditures (PCE) Price Index rose 3.7% over the 12 months through July, unchanged from June and marginally above the 3.6% forecast by economists polled by Reuters. Month-over-month, the PCE increased by 0.2%, surpassing the 0.1% estimate after a 0.1% decline in June.

Personal income also exceeded expectations, increasing 0.4% in July compared to the 0.2% estimate, while consumer spending remained flat following a 0.3% rise in June. Consumer spending accounts for more than two-thirds of US economic activity.

These figures nudged markets to price in a 40.1% probability of at least a 25 basis point rate hike at the Federal Reserve's September meeting, up from about 36% before the data release, according to CME FedWatch.

Boston Fed President Susan Collins emphasized on Tuesday that the Fed will likely need to raise interest rates soon unless inflation continues to decline, noting that inflation remains "too high" and a "pervasive" concern for businesses and households.

Despite the dollar's gains, George Vessey, lead FX and macro strategist at Convera in London, cautioned against aggressively chasing the rally, stating, "Overall, because the headline was warm enough to prevent a dovish victory, those details weren't really strong enough to hand the hawks a clear win, so I wouldn't chase the rally at all."

Meanwhile, European Central Bank (ECB) board member Isabel Schnabel indicated that interest rates in the eurozone must rise further due to ongoing risks from the Middle East conflict and a strong eurozone economy that could push inflation higher. This followed reports that ECB policymakers are prepared to raise rates at their September meeting to mitigate side effects from the Iran war but are reluctant to signal further tightening beyond that.

Additionally, the Canadian dollar weakened by 0.24% against the US dollar to C$1.387 per dollar, reversing previous gains after Canada imposed retaliatory tariffs on about $20 billion worth of US imports and introduced aid measures following a collapse in trade talks with the US over the weekend.

Sources