U.S. inflation was less than forecast in August which is why the U.S. dollar sold off in a first response to the data. But why did the dollar dip not last and prices in the GBP/USD and EUR/USD reversed course? The answer is that inflation remains generally elevated while the 5.3 percent (YoY) headline and 4.0 percent core CPI are still far beyond the Federal Reserve target. This leaves the argument about whether pandemic-related inflationary pressures are transitory undecided. The Fed may have some more flexibility on when to start tapering but high inflation is till an argument for a more imminent taper decision.
Fed policy makers could eventually wait until December to officially announce a plan to taper asset purchases.
Technically, both GBP/USD and EUR/USD pulled back from short-term resistance zones. The cable reversed course after touching 1.3913 and is now looking at a break of 1.38. Below 1.3780, we look at 1.3730 and further 1.3650. In the EUR/USD we look at a trading range between 1.1840 and 1.1750 as long as bulls are unable to take out the 1.1850-barrier.
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