EUR/USD jumps to three-month high following Powell’s tapering comments

The US dollar closed last week’s session on the defensive, as USD investors were left disappointed by Federal Reserve chair Jerome Powell’s speech at the Fed’s annual Jackson Hole Symposium’

Meanwhile, trade in the pound is mixed so far this morning with GBP/EUR flat at €1.1641 and GBP/USD climbing to $1.3792. GBP/CAD is rangebound at CA$1.7354, while GBP/AUD and GBP/NZD retreat to AU$1.8802 and NZ$1.9529 respectively.

Coming up, the focus today will be on the publication of the Eurozone’s consumer price index. Will an acceleration of inflation buoy the euro today?

What’s been happening?

The US dollar fell back at the end of last week’s session, in response to Powell’s key speech at the Jackson Hole summit.

While Powell suggested it would be appropriate for the Fed to start tapering its bond purchases this year, the absence of any clear timetable for when this might start came as a disappointment to USD investors.

The euro, meanwhile, benefitted from its negative correlation with the US dollar on Friday, and was able to trade with modest gains.

These gains were reinforced at the start of this week’s session, following a robust inflation reading from Germany.

Concerns over high coronavirus cases and the weakness of the UK’s supply chains left the pound side-lined at the end of last week.

Sterling then remained mostly rangebound on Monday, as a bank holiday in the UK resulted in thin trading conditions in Sterling.

What’s coming up?

Top of the agenda today will be the publication of the Eurozone’s latest CPI release later this morning.

August’s preliminary figures are expected to report a sharp acceleration of inflation in the bloc. While the European Central Bank (ECB) remains reluctant to begin tightening its monetary policy, could a particularly strong reading see EUR investors revise their expectations?

For USD investors the immediate focus will be on tomorrow’s ISM manufacturing PMI, where a slowing of activity in the factory sector might dent the US dollar.

Finally in the absence of any notable GBP data releases this week, the pound could face an uphill battle as a result of ongoing worries over the UK’s coronavirus situation.