After increasing for several months, US core inflation dropped to 0.3% m/m from the forecast 0.4%. The US consumer price inflation rate stood at 5.4% y/y. The Fed's rhetoric has become more hawkish over the past several days. Dallas Federal Reserve Bank President Robert Kaplan has once again urged the regulator to announce tapering during the September meeting and start reducing its support for the economy in the same month. Federal Reserve Bank of Richmond President Thomas Barkin said the central bank would begin to limit stimulus in a few months.
Given that James Bullard and Raphael Bostic have spoken out in favor of tapering earlier, the decision seems to have already been made. Only unexpected events, such as the lack of guarantees from Congress to raise the debt ceiling, a disappointing jobs market report for August, or a new even more dangerous coronavirus strain than the Delta variant, may prevent the regulator from announcing the reduction of stimulus. The majority of FOMC members fear that due to the labor market's poor performance, a slow pace of economic recovery may become the main reason for a prolonged exit from an ultra-loose monetary policy.
Market reaction to the US inflation data was subdued. Stocks and bond yields did not change. The US producer price index and the eurozone's industrial production will be released today. OPEC will also deliver its monthly report. The greenback is expected to strengthen against the basket of major currencies.
EUR/USD
The euro is unlikely to advance against the US dollar. The eurozone is facing an increase in risks. The ZEW indicator of economic sentiment in the euro area fell for the third time, indicating that the German economy is at risk.
The eurozone's industrial production data is set to come out today. It is likely to show that the economic recovery is slowing down.
EUR/USD approached the support level of 1.1700 but failed to break the barrier. The bearish trend is expected to resume after a brief consolidation period. The targets are seen at 1.1605 and 1.1500.
GBP/USD
Today, a series of macroeconomic reports was published in the UK. These turned out to be mixed results. Thus, 2Q GDP came at 22.2% and was in line with market expectations. The indicator soared due to a low base effect and was unlikely to boost demand for the pound sterling.
At the same time, the goods trade deficit in the UK widened to GBP 11.89. It was the widest goods trade gap in 8 months. Disappointing manufacturing results were offset by GDP.
Labor market and inflation data are scheduled for release next weak. The readings are forecast to improve. If so, the pound sterling will strengthen. The recent BoE board meeting is considered to be bullish. That is why the publication of positive macroeconomic results may boost GBP. The nearest resistance levels are at 1.3892 and 1.3913. The target is seen at the 1.3981 high.
