Despite eurozone inflation exceeding the European Central Bank's target—strengthening expectations that officials will keep interest rates unchanged next week—the euro fell sharply against the U.S. dollar.

Apparently, traders believe that a more restrictive stance by the ECB is more likely to harm the economy than help contain another surge in inflation.

Consumer prices in August rose 2.1% year-on-year, up from 2% in the previous month and in line with economists' forecasts. Headline inflation, which includes volatile items such as energy and food, remained at 2.3%. Service-sector price growth, a closely watched component, slowed to 3.1%.

These figures add to fears of a eurozone recession, driven by a pause in rate cuts and declining liquidity. Investors worry that the ECB may once again focus solely on fighting inflation, which could worsen the economic downturn, particularly in heavily indebted countries.

At the same time, there are arguments in favor of maintaining tight monetary policy. Inflation in the eurozone remains above the ECB's 2% target, and the regulator risks losing credibility if it does not take decisive measures—especially against the backdrop of new U.S. trade tariffs, which could push inflation even higher by year-end. Moreover, some economists argue that a short-term recession may be a lesser evil than long-term stagflation caused by uncontrolled price growth.

The report also reinforced the ECB's view that on September 11 the bank may again refrain from cutting borrowing rates, taking into account both inflation dynamics and the economy's ability to withstand higher U.S. tariffs.

In July, officials had already left the deposit rate unchanged at 2%, and President Christine Lagarde confirmed that the central bank is "in good shape." Investors are no longer certain there will be further cuts this year.

Recently, Bundesbank President Joachim Nagel described the economy as being in a kind of equilibrium, with both inflation and interest rates at 2%. Executive Board member Isabel Schnabel said in an interview that she sees no grounds for further rate cuts under current conditions. She warned that U.S. tariffs would be an outright inflationary factor.

Today, a speech by ECB President Christine Lagarde is expected, which could set the further direction for EUR/USD.

It is worth noting that the latest eurozone data follows mixed signals from other regions. While France, Italy, and Spain posted weaker-than-expected figures, German inflation came in slightly higher than forecasts. This leaves the outlook uncertain—even after the European Union reached an agreement with the U.S. to cap tariffs on most exported goods to the country at 15%.

As for the current technical picture of EUR/USD, buyers need to regain the 1.1655 level. Only this would allow for a test of 1.1685. From there, the pair could rise to 1.1715, but doing so without support from large players would be quite difficult. The furthest target is the 1.1740 high. In case of a decline, I expect strong buyer activity only around 1.1625. If no support appears there, it would be better to wait for a retest of the 1.1605 low or consider long positions from 1.1575.

As for GBP/USD, buyers need to take control of the nearest resistance at 1.3390. Only this would allow a move toward 1.3430, with further gains beyond that proving difficult. The furthest target is the 1.3470 level. In the event of a decline, bears will attempt to retake control at 1.3340. If they succeed, a break of the range would deal a serious blow to bullish positions and push GBP/USD toward the 1.3310 low, with the prospect of reaching 1.3280.