The sharp growth in US indicators, especially those related to inflation, is fueling speculations that the Federal Reserve will be forced to reduce its bond purchases earlier than scheduled.

Currently, the federal funds rate is 0.05%, which is the lowest level since April. Many analysts believe that this will increase as early as this month, but the chances of it are very slim. Nevertheless, investors will remain on their toes on whether the Fed will raise interest rates at the meeting this June 15-16, or cut back on its monthly bond purchases.

So far, the statements of Fed officials have been very cautious, but if the central bank ultimately decides to tighten its monetary policy, demand for dollar will soar.

Surprisingly, inflation in the Euro area also jumped in May, reaching 2.0% instead of the expected 1.9%. And core inflation, which excludes energy and food prices, accelerated to 0.9%. Apparently, CPI rose by 0.3% month-over-month.

The unemployment rate also fell to 8.0%, thanks to some improvement in Germany's labor market. Destatis reported that the number of jobless people in the country decreased by 29,000 (1.4%), so its unemployment rate slipped to 4.4%.

Manufacturing activity in the whole Euro area also continued to show stable growth, so PMI reached 63.1 points in May. This, of course, gave confidence that economic recovery will continue.

In the US, manufacturing activity grew at a faster pace in May, so PMI rose to 61.2 points. The sharp jump was due to a strong growth in new orders, which climbed to 67.0 points, thanks to the easing of some quarantine restrictions.

Despite this, euro still failed to break above the local highs, but a lot depends on 1.2249 today because a break above it will set off a much larger jump towards 1.2285 and 1.2315. Meanwhile, a drop below 1.2213 will lead to a plunge towards 1.2182 and 1.2134.

GBP

Manufacturing activity in UK fell short of forecasts. PMI for May was only 65.6 points, instead of the expected 66.1 points. Nevertheless, increased demand from EU, US and China raised exports, which is very good news to the UK economy.

Home prices also rose sharply, which pushes inflation higher. A report from the Nationwide Building Society said home prices jumped 10.9% year-on-year, which is the largest increase since August 2014. However, it fell to 1.8% month-over-month.

All this pulled pound down yesterday. If it continues to drop below 1.4140, then the price will hit the base of the 41st figure. But if the quote goes above 1.4190, pound will return to 1.4240.