The US dollar took a pause after the dollar index hit a 12-month low a day earlier. The pullback occurred across the entire spectrum of the market, but there were no reasons to doubt the long-term trend, and there are logical explanations for this

Both key events on Wednesday, which could change the mood of investors, came out in line with expectations, so they did not have a significant impact on quotes. We are talking about the publication of the minutes of the Fed's September meeting and the consumer inflation report.

According to the US Bureau of Labor Statistics, consumer inflation in the United States increased in September by 0.4% (forecast +0.3%), or 5.4% yoy (forecast 5.3%). The growth is slightly higher than expected, but the root value excluding energy and food, which the Fed takes into account, remained at the same level of 4%.

Nevertheless, it is obvious that the fears that inflation is becoming prolonged have been confirmed, and therefore, some reaction has still occurred. The yield on 5-year TIPS bonds rose to 2.68%, which is a 4-month high, and gold rose to a monthly high of $1,792 per ounce at the end of the day. These dynamics indicate not so much the weakening of the US dollar, but rather the preparation for an increase in demand for protective assets due to the exit from risky assets, since the minutes of the FOMC meeting confirmed forecasts about the imminent beginning of the curtailment of QE.

The consensus opinion of the FOMC members is that they are ready to start reducing by $ 15 billion a month, but according to the minutes, several participants are ready for a faster reduction. For example, 20 billion per month. In any case, the completion of the program is expected no later than July 2022, that is, if it starts in November.

In addition, it is necessary to pay attention to the fact that there is no unity among the members of the Committee on how to interpret the pace of labor market recovery. The weakness of the labor market, provided that incentives are reduced, poses a serious threat, and although there is no word "stagflation" in the document, it is clear that the Committee members are concerned about this threat. A weak labor market, subject to a reduction in QE, is a factor in the growth of demand for protective assets. Most likely, the exit from risky assets will take on a more accentuated character in the coming days, that is, commodity currencies will be under pressure. At the same time, high energy prices will not help, since they are largely an indicator not so much of high demand as of administrative and political errors.

GBP/USD

The pound is experiencing a multi-directional impact from several factors at once, and it is difficult to say where the demand will swing in the end.

At the current stage, the Brexit factor is no longer a bullish factor, but a bearish one. Negotiations with the EU are tense, Britain is unable to capitalize on its situation, and until a new trade agreement is worked out, the trade balance is deteriorating. The energy crisis caused by planning errors threatens to slow down production and increase imports in the event of a cold winter, which will also worsen the trade balance and will require additional measures to support the economy, rather than curtailing incentives.

At the same time, wage growth rates already exceed the dock level, and, according to NIESR forecasts, the process is not over yet. Salary growth is expected to be 4.5% in the 4th quarter from the current 4.2%.

Accordingly, the trend is in favor of further inflation growth, which forces the Bank of England to react faster after the Fed announced an exit from the ultra-soft policy. The level of this threat is still unclear.

It can be assumed that the current growth is temporary and may end near the technical resistance level of 1.3720.

EUR/USD

After the ZEW index for Germany declined in October by 4.2, namely to 22.3 p., which is recorded for the 5th time in a row, it can be argued that the prospects for the German economy have deteriorated markedly. For the eurozone, the index also declined for the 5th time in a row, but at the same time, most experts expect inflation to continue to rise. Both of these processes simultaneously mean an increase in the threat of stagflation, which makes the prospects for the euro, especially amid the expected completion of the Fed's QE, rather weak.

It can be assumed that the euro will continue to decline. It is logical to use the current pullback for selling from higher levels. The target is set at 1.15