The Moon is known to have a small liquid core, and it is thought that in the distant past the core may have produced strong magnetic fields recorded in lunar samples. Here we implement a numerical model of lunar orbital and rotational dynamics that includes the effects of a liquid core. In agreement with previous work, we find that the lunar core is dynamically decoupled from the lunar mantle and that this decoupling happened very early in lunar history. Our model predicts that the lunar core rotates subsynchronously, and the difference between the core and the mantle rotational rates was significant when the Moon had a high forced obliquity during and after the Cassini State transition. We find that the presence of the lunar liquid core further destabilizes synchronous rotation of the mantle for a wide range of semimajor axes centered around the Cassini State transition. Core-mantle boundary torques make it even more likely that the Moon experienced large-scale inclination damping during the Cassini State transition. We present estimates for the mutual core-mantle obliquity as a function of Earth-Moon distance, and we discuss plausible absolute time lines for this evolution. We conclude that our results are consistent with the hypothesis of a precession-driven early lunar dynamo and may explain the variability of the inferred orientation of the past lunar dynamo.