After yesterday's session, the euro and the British pound reacted strongly to the data, and while the euro's move was clear, the pound was driven more by broader risk-asset dynamics and the dollar itself. The large drop in the first half of the day was almost fully retraced, but pressure returned toward the evening, and the market approached today's inflation prints in a state of unstable equilibrium. The week's focus has finally shifted, and now price figures decide everything.

The main blow yesterday came from US producer prices. The indicator rose 0.4 percent in August after 0.1 percent in July; year-on-year dynamics jumped to 5.4 percent, and core prices rose to 4.7 percent — meaning the print exceeded both the headline forecast of 5.3 percent and the core expectation of 4.6 percent. This raised expectations of more aggressive Federal Reserve policy and left no room for those counting on a softening of rhetoric at current rates of price growth. The central bank's meeting will take place on September 15–16, and the market now prices roughly a 65 percent probability of a rate hike, which favors the dollar and weighs on risk assets across the board.

Looking into the report in more detail, the picture is less menacing than the headline suggests. One item drove most of the move: diesel fuel, which jumped 2.4 percent in one month and accounted for more than a third of the overall rise in energy prices, which gained 4.2 percent. What's more interesting is this: gas stations have not yet been able to pass this increase on to consumers, and retail margins for fuel and lubricants fell 11.3 percent — meaning retailers themselves absorbed the hit. So far, the end buyer has been the beneficiary, not yet seeing higher prices at the pump, while the loser has been the retail link in the fuel market, operating effectively at a loss.

It cannot go on like this forever, and sooner or later costs will be passed on to consumers. That is exactly the secondary effect the Fed fears most, because it turns a one-off energy shock into persistent inflation. So I would not be quick to dismiss yesterday's report as a one-time outlier: the cost-pass-through mechanism has been set in motion, which means pressure on consumer prices will manifest in the coming months.

The European Central Bank's decision helped the euro recover most of its decline. The central bank has raised rates again since the start of the Iranian conflict and brought the deposit rate to 2.5 percent, signaling that tightening is not over and the next step could come as early as next month. The reason is simple: inflation in the eurozone is stuck above 3 percent and is not falling on its own. Christine Lagarde explicitly pointed to rising energy prices, which will gradually leak into core inflation and food prices, and noted that secondary effects worry her. Those who benefit from such a stance are euro holders, who gain the prospect of a widening differential; losers are borrowers and industry in the bloc, whose July reports for Germany and France have already shown the cost of each further increase.

The British data block today looks like the week's most dangerous spot for the pound. UK GDP for the month is released with a forecast of 0.3 percent growth and for the quarter with a forecast of 0.4 percent, and industrial production is expected to slow. The pound has no independent growth drivers right now; the Bank of England has given no signals of tightening, and the budget topic, with possible tax increases, has hung over the currency since the start of the week. Therefore, any disappointment in the GDP figures will be a direct reason for the market to sell the pound, and the reaction will be noticeably sharper than for a similar miss in European data. Strong data, by contrast, will give the pound a chance to recoup some losses, but even then the move will be limited because the dollar is being supported from the other side.

But the main event of the day is the US Consumer Price Index for August. The forecast assumes a 0.4 percent monthly rise after a 0.1 percent rise in July, noting that June recorded a 0.4 percent decline, with energy prices playing the main role. The year-on-year figure is expected to be around 3.4 percent; core prices are expected at 0.2 percent month-on-month as in July, and 2.4 percent year-on-year. If the release, like yesterday's producer-price report, comes in above forecasts, the dollar will continue to strengthen against the euro and the pound, the probability of a September rate hike will move well above the current 65 percent, and risk assets will end the week under substantial pressure. A print matching the forecast or slowing, by contrast, will give the euro and pound breathing room and return the committee's debate to an uncertain state right before the meeting. The Michigan Consumer Sentiment and Inflation Expectations Index is released later and will remain secondary, although the market will react to the inflation component of that survey in the event of an extreme surprise.

For EUR/USD, short positions on a recovery today are suitable at 1.1617 if a false breakout forms, or at 1.1631 on an unsuccessful consolidation; shorts on a bounce from 1.1653 are relevant only if US price pressure eases sharply — target in all cases 15–20 pips. For long positions, the nearest support is 1.1600, where a false breakout would be a trigger for longs. If there is no false breakout, a range breakout would pull the euro to 1.1584, and with high US inflation and rising core prices, the pair will likely reach 1.1568, where I will look for buys on a bounce of 15–20 pips. Longs from 1.1584, as from 1.1600, are justified only on a false-break setup.

For GBP/USD, the story is similar, but the outcome depends entirely on GDP. With strong figures, a false breakout on the rise to 1.3531 would provide a reason to sell, aiming for a return to 1.3495. In contrast, a breakout and consolidation below on weak data would increase pressure and push the pair to 1.3474 with a further target of 1.3457, where I will look for longs on a bounce of 15–20 pips. Longs from 1.3474, as well as from 1.3495, are considered only on false breakouts. If bears do not show up on the rise to 1.3531, it is wiser to wait for a larger resistance at 1.3565, where an unsuccessful consolidation will also trigger shorts. On a rebound, I will look to sell from 1.3596 with the same 15–20 pip move.

In my view, the bias toward the dollar remains into the week's end. Yesterday's producer-price report has already shifted expectations for the September Fed meeting, and the mechanism of passing fuel costs into consumer prices has only just been set in motion, so I assess the risk of inflation printing above forecasts as elevated. The euro is defended by its own tightening cycle and can hold the range even with strong US data, while the pound remains the most vulnerable link and, absent a material GDP surprise, risks closing the week lower.