The US dollar rose sharply against a number of risk assets, but has since almost given back all of its gains. The rally came after news that the US Producer Price Index (PPI) in July rose much more strongly than economists had expected. This suggests that companies are passing on higher import costs related to tariffs.

According to the report released Thursday by the Bureau of Labor Statistics, the PPI rose 0.9% compared to the previous month, marking the largest increase since the peak of consumer inflation in June 2022. Compared to last year, inflation jumped to 3.3%.

Such an acceleration in producer-driven inflation creates additional pressure on the Federal Reserve, which is already closely monitoring inflation risks in the economy. Given that consumer inflation also remains elevated, the Fed may be forced to continue its policy of high interest rates despite concerns about slowing economic growth.

The consequences for markets could be significant. On the one hand, higher interest rates may lead to a decline in corporate profits due to increased financing costs. On the other hand, investors may start shifting into safer assets such as government bonds, which could push down stock prices.

The report also noted that service costs rose 1.1% last month — the highest level since March 2022. In the services sector, wholesale and retail margins rose 2%, primarily due to wholesale trade in machinery and equipment. Prices for goods excluding food and energy rose 0.4%.

"Although businesses have so far borne much of the costs associated with higher tariffs, margins are increasingly being squeezed by rising prices for imported goods," the report said. It also noted that companies are adjusting prices for goods and services to offset costs associated with US tariff hikes, despite weaker demand in the first half of the year. Clearly, the extent to which companies pass the tariff burden on to consumers will be critical in determining future interest rate trends.

While Federal Reserve officials generally expect that import tariffs will lead to higher inflation in the second half of the year, they differ on whether this adjustment will be a one-time event or a more prolonged trend. Given that consumer price data published earlier this week point to a softer rise in prices in July and the labor market is losing momentum, Fed leadership is expected to cut borrowing costs at its meeting next month. However, strong PPI data may lead some policymakers to consider that price pressures could intensify again in the near future. The question policymakers still need to resolve is how much of this price growth will be absorbed by wholesalers, retailers, and resellers.

As for the current EUR/USD technical picture, buyers now need to break above 1.1700. Only then will they be able to target a test of 1.1730. From there, a move toward 1.1770 becomes possible, though doing so without support from large market players will be challenging. The most distant target is the 1.1790 high. If the instrument declines, I expect significant buyer activity only around 1.1640. If no one steps in there, it would be preferable to wait for a retest of the 1.1600 low or open long positions from 1.1565.

As for the current GBP/USD technical picture, pound buyers need to break the nearest resistance at 1.3555. Only then will they be able to target 1.3590, above which a breakout will be difficult. The most distant target is the 1.3615 area. If the pair falls, bears will try to take control of 1.3520. If successful, breaking this range would deal a serious blow to the bulls' positions and push GBP/USD down to the 1.3480 low with the prospect of moving toward 1.3445.