The dollar bearish correction slowed down on Thursday as markets appear to have fully priced in the bearish tones that emerged in the Fed's narrative, and the report on US producer prices sparked some concerns that CPI might exceed expectations, with a potential dollar upside move on the news. EURUSD remains locked within a medium-term bearish channel:

PPI data for September showed that producer inflation accelerated more than expected. The headline PPI indicator increased by 0.5% for the month instead of the expected 0.3%, and the core indicator increased by 0.3% against the forecast of 0.2%. PPI doesn't always have a direct impact on consumer prices, but in recent months, it has shown decent predictive power, so the probability of a surprise in the CPI has increased somewhat today.

 However, in the past few days, the market has been influenced by bullish momentum in US Treasury bonds, and PPI data went almost unnoticed. The influx of investors into bonds was triggered by comments from Fed officials this week. They created a strong impression that the central bank is doubting the need to keep interest rates high for a long time. The reason is that the high yields of long-term bonds (essentially, the baseline cost of long-term borrowing in the economy), as a result of the shift of investors from long-term to short-term bonds, are helping the Fed do its job well, namely, to curb inflation. Recall that since the beginning of September, the markets have been quite aggressively pricing in the expectation that the Fed will not move to rate cuts anytime soon, resulting in a sharp rise in long-term interest rates. Ultimately, the Fed became concerned about this phenomenon and engaged in a kind of verbal intervention, leading to a reversal in the trend of long-term yields. This caused a chain reaction in other asset classes: the dollar weakened, and stocks rose.

 The shift in the Fed's narrative found resonance among voting members of the FOMC, and signs of consensus among officials allowed market participants to increasingly confidently buy bonds. The Fed's minutes yesterday were also received rather coolly, although they stated that inflation is "unacceptably high”, and that monetary policy will maintain a restrictive stance for some time.

The European Central Bank published a report on consumer expectations yesterday, which showed a slight increase in one-year inflation expectations in August from 3.4% to 3.5% and from 2.4% to 2.5% for 3-year expectations. These are minor changes, but the fact that inflation expectations are still rising, despite the ECB's rate hikes, supports the need for rate increases.

 Data from the UK showed that GDP grew by 0.2% for the month in August, in line with expectations, but the previous figure was slightly revised downward. Industrial production was up 1.3% year-on-year, compared to the expected 1.7%. The pound's exchange rate remained unchanged after the data was published.

 The Bank of England continues to closely monitor inflation and employment data, which will be released next week. Market expectations for another interest rate hike this year (two meetings remaining) are below 50%, so the pound's dynamics are likely to be determined more by the sentiment regarding the dollar, where there is still room for rate increases. From a technical analysis perspective, the situation in GBPUSD is similar to EURUSD: the pair has tested the upper boundary of the range, and in the event of a sustained move above this line, the markets may be inclined to believe that the bearish trend in the pair since mid-summer is over: