Euro rallied yesterday morning. But when the US released its weekly labor market report in the afternoon, dollar began to climb up, accordingly pushing the euro back to its daily lows.

At the same time, the higher-than-expected US inflation continues to fuel speculation that the Federal Reserve may tighten its monetary policy much earlier than scheduled. More specifically, many expect a rate hike by December next year.

But for the Federal Reserve, nothing is of immediate concern yet. Fed Chairman Jerome Powell and his colleagues are still confident in a more favorable outlook, claiming that the ongoing spike in inflation will be short-lived, so investors need to be patient and careful when making decisions. They pointed out that core inflation remains under control and projects that inflation may rise to about 2.4% this year, but then return to 2.0% next year.

Going back to yesterday's report on the US labor market, initial jobless claims came out at 473,000, 34,000 lower than the record a week ago. Clearly, the sector continues to improve as more and more Americans get vaccinated against COVID-19. Moreover, the growing consumer demand helps spur economic activity, not to mention the lifting of restrictions allowed businesses to re-open, thereby returning employment.

This is exactly what the Fed is aiming for. The labor market needs to return to its pre-crisis state first before the central bank will consider any changes in its monetary policy.

As for other macro statistics, the Department of Labor also reported that producer prices

All this led to a decline in EUR/USD. And today, a lot will depend on 1.2055, as a break below it will push the euro even lower to 1.2020 and 1.1990. But if the price goes back to 1.2105, then the euro will have a change to climb to 1.2150 and 1.2180.

GBP

Like euro, pound also declined yesterday due to strong reports from the US. At the same time, another dispute arose between UK and EU, when Britain made a number of accusations against Brussels regarding fishing. UK Prime Minister Boris Johnson said the UK was denied access to fishing spots as soon as the European Commission signed Brexit.

On the bright side, UK house prices rose markedly in April, mainly due to growing demand, which outstripped supply. The balance jumped to 75%, from only 62% in March.

As mentioned earlier, pound traded downwards yesterday, but today a lot will depend on 1.4000 as a break above it will return the quote to 1.4070, and then to 1.4110 and 1.1460. But if the pound goes below the level, the price will collapse lower to 1.3970 and 1.3920.