Morning Bid: Waiting on PCE for rate clues

A look at the day ahead in European and global markets from Rae Wee

Investors cap off a volatile week dominated by Federal Reserve drama and Nvidia earnings with Friday's release of a key inflation measure that could influence the Fed's September policy meeting.

Expectations are for the core personal consumption expenditures (PCE) price index - the Fed's preferred measure of inflation - to have stayed steady at 0.3% on a monthly basis, putting the annual rate at 2.9%.

However, there is the risk the data may reveal more evidence of U.S. President Donald Trump's sweeping tariffs filtering into consumer prices, following a recent upside surprise in producer inflation.

Still, markets have pretty much priced in a 25-basis-point cut from the Fed in September, though what happens after that remains uncertain.

Fed Governor Christopher Waller said on Thursday he wants to start cutting rates next month and "fully expects" more rate cuts to follow to bring the Fed's policy rate closer to a neutral setting, stepping up his call to lower short-term borrowing costs.

Bets of imminent Fed cuts left the dollar set for a monthly fall on Friday, with worries about the central bank's independence also weighing on the currency as Trump steps up his campaign to exert more influence over monetary policy.

Fed Governor Lisa Cook filed a lawsuit on Thursday claiming Trump has no power to remove her from office, after he took the unprecedented step on August 25 of announcing he would fire her.

Ahead of the release of the PCE figures, preliminary French and German inflation data are also due later in the day.

European Central Bank (ECB) policymakers were divided on whether inflation was more likely to come in higher or lower than expected when they met in July, ECB accounts showed on Thursday, in a foretaste of a debate set to come to a head in the coming months.

The ECB in July kept rates steady and it will probably do so again next month before discussions about further cuts likely resume in the autumn, especially if European economies weaken under U.S. tariffs, sources have told Reuters.

Key developments that could influence markets on Friday:

- U.S. PCE price index (July)

- German preliminary CPI (August)

- France preliminary CPI (August)

(Editing by Jacqueline Wong)