Euro unexpectedly rose on Wednesday and almost won back the loss it had when the US reported that its inflation rate jumped again much higher than expected. Initially, investors believed that Fed Chairman Jerome Powell would deliver statements that would further strengthen dollar, but closer to the time of the actual speech, demand for safe-haven assets decreased.

One reason could be the positive statements of the German Economy Ministry, which stated that recovery in the country continued in full swing this second quarter. As such, forecasts remain positive, especially in the industrial sector. However, supply disruptions could persist, which will slightly constrain economic growth.

But the overall recuperation will carry on, as hinted by the ongoing improvements in the different sectors. One major risk though is the increasing COVID-19 cases caused by the discovered Delta strain of the virus.

In terms of inflation, ECB member Isabel Schnabel said that the recent jumps are the result of the central bank's tolerance in adjusting its monetary policy. She claimed that real changes should be clearly reflected in the actual underlying inflationary dynamics, and only by that will the ECB reconsider its stance on the policies.

Data on the Euro area's industrial production was also released, except it did not affect the markets much. Eurostat said the indicator fell 1.0% month-over-month, but was up 20.5% year-on-year.

In the US, Fed Chairman Jerome Powell said the central bank will continue to adhere to a soft policy until the full recovery of the US economy. Obviously, this means that there will not be changes in rates and bond purchases, despite the ongoing jump in inflation. Powell said there are still problems in the labor market, so they will not risk phasing out the support programs. But once the central bank sees that employment returned to pre-crisis levels, they will start reconsidering their stance on monetary policy.

Another reason is the Fed members' belief that inflation will decrease and return to around 2%. But as optimistic as they are about it, several economic indicators are already exceeding expectations. One example is US PPI, which, according to reports rose 1.0% month-over-month and grew 7.3% year-on-year. Excluding energy and food, the indicator was up 5.6%.

With regards to EUR / USD, a lot will depend on 1.1838 today because going above it will result in a jump towards 1.1890. But if the quote drops to 1.1805, euro will decline to 1.1775.

GBP

Pound also grew on Wednesday, thanks to strong UK inflation data. A report released yesterday indicated that CPI in June was much better than expected, having risen 0.5% instead of the expected 0.2%. On an annualized basis, CPI jumped 2.5%.

After that, the Bank of England released several statements that note the central bank's difficulty in assessing prospects for inflation. Deputy Governor John Cunliffe said they still need to see whether supply chain problems will persist, and what the supply-demand balance will be at the end of summer. Cunliffe said that only by that will the Bank of England be able to make proper forecasts for economic growth.

Going back to GBP/USD, a lot depends on 1.3860 today because pushing the quote above it will result in a further climb towards 1.3890. But if the quote drops to 1.3829, pound will go down to the base of the 38th figure, and then to 1.3770.