USD slipped against most of its major rivals in the European session on Friday as investors cautiously awaited the release of the U.S. PCE inflation data for August later today (due at 13:30 GMT), looking for hints on the state of price pressures in the world’s largest economy, as it recovers from the pandemic.

The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, edged down 0.10% to 94.14.

Economists forecast that the core personal consumption expenditures (PCE) price index, the Federal Reserve's preferred inflation gauge, rose 3.6% y/y in August, the same pace as in July. This represented the highest reading since the early 1990s. It is believed that the upcoming inflation data could provide clues on the Federal Reserve’s timeline for tapering its bond purchases and increasing key interest rates. 

The  Fed’s updated “dot plot”, which was released after the conclusion of the central bank's September gathering a week ago, showed that half of the FOMC members now see the first interest rate hike in 2022. At the same time, the U.S. central bank’s chairman Jerome Powell signaled that the Fed could begin scaling back its bond purchases in November and end the process by mid-2022.

Meanwhile, the news that U.S. President Joe Biden signed a continuing resolution to fund the government through early December, preventing a shutdown, offered cause for optimism. The fate of the looming debt ceiling, however, remains uncertain. The U.S. lawmakers still will have to suspend or raise the debt ceiling by October 18 to avoid credit default.