Euro and pound perked up on Wednesday after the publication of Fed protocols for its July meeting. However, growth did not last long as the general conclusion of the minutes is that the US economy has already met the target inflation rate, while target employment rate is yet to be achieved.

That being said, most of the members deem that it necessary to focus on the further advancement of employment, as inflation is already much better. Thus, at the next meeting in September, the topic will most likely revolve around potential cutbacks on bond purchases. The members are yet to agree on the timing and pace of such action, but most of them already acknowledge the need for tapering.

In fact, someone already put forward a proposal to cut the monthly purchases by $ 120 billion. But some say it should be done by early next year and only if the labor market reaches the target levels. For example, Minneapolis Fed President Neel Kashkari said he wants to see stronger employment reports, while Boston Fed President Eric Rosengren said he is ready for cuts at the next meeting, provided that August employment data is favorable. As for St. Louis Fed President James Bullard, he wants to reduce bond purchases in the first quarter of 2022.

Most likely, a lot will now depend on how the US economy is affected by the recent outbreak caused by the Delta variant. If there is no significant damage to the labor market, the Fed may start scaling back programs by December, which is much earlier than scheduled.

All this provoked an increase in demand for risky assets, so euro and pound rallied briefly yesterday before going back to previous levels.

On the topic of macro statistics, Eurostat reported yesterday that construction volume in the Euro area fell 1.7% in June, after declining by 0.4% in May. Production in commercial building construction also slipped 1.9% month-over-month, while private sector construction rose 0.2%. In terms of year-on-year data, construction volume increased by 2.8% in June.

US also released an important economic report, but it is about the housing sector. The data indicated that there was a sharp decline in US new home construction in July, so the index was down 7.0% to 1.534 million year-on-year. Apparently, construction of apartment buildings fell by 13.1% to 423,000, while construction of single-family homes fell by 4.5% to 1.111 million.

With regards to EUR / USD, a lot currently depends on 1.1740 because a rise above it will provoke a larger jump to 1.1770 and to the 18th figure. Meanwhile, a drop below it will set off another decline towards the base of the 17th figure, and then to 1.1630 and 1.1540.

GBP

Pound traded horizontally yesterday, after failing to break through 1.3770. Moreover, the data on UK CPI was actually weaker than expected, as the Office of National Statistics (ONS) said CPI rose only 2.0% year-on-year, after climbing 2.5% in June. And core inflation, which excludes prices for energy, food, alcoholic beverages and tobacco, slowed to 1.8% from 2.3% in the previous month. Even so, analysts expect inflation to peak to 4.5% by the end of this year, which makes traders reluctant to take long positions as they deem that the Bank of England is too optimistic. They are starting to doubt that the central bank will taper in the coming years, which accordingly affects the strength of pound. This is because the longer the policy changes are delayed, the weaker the currency will be compared with other currencies.

Bank of England forecasts say inflation will reach 4% this year, and then slightly exceed that level in early 2022. But Bloomberg analysts believe that by the end of 2021, inflation will only grow to 3.3%. Then, in 2022, it will reach 3.5%.

Going back to GBP/USD, a lot currently depends on 1.3770 because rising above it will set off a jump towards the 38th figure, and then to 1.3850. Meanwhile, a drop below the level will provoke a decline to 1.3730, and then to 1.3690 and 1.3635.