The euro and the pound have pulled back from their recent highs as the US dollar recovered some of its recent losses following a batch of stronger-than-expected economic data out of the United States.

US inflation surprised to the upside. The Personal Consumption Expenditures (PCE) price index — the Federal Reserve's preferred gauge of inflation — accelerated to 3.7% year-on-year against expectations of 3.6%, while the quarterly core PCE reading, which strips out volatile food and energy costs, came in at 3.6%, above the forecast of 3.4%. Both readings remain well above the Fed's 2% inflation objective.

Consumer activity provided additional support for the dollar. Personal spending rose by 0.2%, versus expectations of 0.1%, while personal income increased by 0.4% — double the projected 0.2%. Revised US GDP growth for the second quarter came in at 1.5%, in line with market expectations.

Taken together, the figures point to continued resilience in the US economy and reduce the likelihood of the Federal Reserve shifting rapidly towards a more accommodative monetary-policy stance.

Market attention is now turning to fresh US data and the Jackson Hole symposium, the annual conference hosted by the Federal Reserve Bank of Kansas City in Wyoming that has historically served as a platform for Fed chairs and policymakers to frame their thinking on the economy and interest rates. Initial jobless claims are expected to come in at 208,000, up slightly from 206,000 a week earlier, while the trade deficit is forecast to narrow modestly to $100.8 billion from $101.4 billion previously.

Following the latest strong US figures, investors will also be paying close attention to comments from Fed officials on inflation and the outlook for interest rates. Resilient economic data combined with hawkish signals from Jackson Hole could provide further support for the dollar, whereas signs of a cooling labour market or a more cautious Fed tone could put renewed pressure on the US currency.

EUR/USD

EUR/USD has made several unsuccessful attempts to establish itself above 1.1700, and the resulting price action has produced a doji pattern. From a technical perspective, this formation could signal a corrective decline towards the 1.1620–1.1580 area. The bearish scenario would be invalidated by a firm move and a close above 1.1700.

Key events for EUR/USD:

• Today at 09:00 (GMT+3): Germany's GfK Consumer Confidence
• Today at 13:00 (GMT+3): total number of unemployed people in France
• Today at 15:00 (GMT+3): Jackson Hole Symposium

GBP/USD

GBP/USD is showing signs of a potential reversal, with a "tower" pattern taking shape. If the formation is confirmed, the pair could decline towards the 1.3530–1.3560 zone. A sustained break below this area could trigger a deeper correction towards 1.3440–1.3480. Conversely, renewed dollar weakness could allow GBP/USD to recover above 1.3600.

Key events for GBP/USD:

• Today at 15:30 (GMT+3): US initial jobless claims
• Today at 23:30 (GMT+3): US Federal Reserve balance sheet
• Tomorrow at 16:45 (GMT+3): Chicago PMI

Outlook

EUR/USD and GBP/USD have retreated from their recent highs after stronger US economic data allowed the dollar to recover some of its recent losses. As two of the most heavily traded pairs in the foreign-exchange market — the largest and most liquid financial market in the world — their exchange rates ultimately reflect the relative outlook for Federal Reserve policy compared with that of the European Central Bank and the Bank of England, which is why each data release and central-bank comment is scrutinised so closely. Whether the current correction develops further will depend on incoming economic data from the United States and the euro area, as well as on signals from Federal Reserve officials. Resilient economic figures combined with a hawkish tone at Jackson Hole could support a further dollar recovery, while signs of a weakening labour market or more cautious Fed commentary could once again put pressure on the US currency.