The gbp dropped on softer than expected inflation numbers out of the UK, while the US dollar staged a recovery from a dovish speech from a Fed official the previous day. The euro was not particularly moved by a weak ZEW German investor sentiment survey, while the Aussie failed to benefit from strong Chinese data released earlier during the Asian session.

Today trading was dominated by the recovery in the US dollar, which was hurt the previous day following a dovish speech by Fed Governor Lael Brainard. There was a lot of speculation about what Brainard would say, as she was the last Fed official to speak before a blackout period ahead of the Federal Reserve meeting next week. In the end, Brainard was her usual dovish self, which to many indicated the Fed would not raise rates. The Fed usually signals when an interest rate increase is on the way and there appeared to be no clear signal this time round.

Still, despite the disappointment of dollar bulls regarding the prospects of a rate hike in the next 1-2 months, the dollar managed to fight off the blues and climb above the 102 yen level while keeping the euro in the 1.12-1.1250 area. The euro itself was mostly unmoved by a lower than expected ZEW survey. The economic sentiment index came in steady at 0.5 (2.5 expected) during September, while the current conditions reading dipped to 55.1 (56.0 expected).

The US dollar posted strong gains particularly against the pound and the Australian dollar. GBP/USD dropped below 1.32 from a European open of 1.3337. It was last trading at 1.3208. The pound was hurt by a softer than expected reading on UK inflation. UK inflation was steady at 0.6% year on year in August and core inflation was also steady at 1.3%. Economists had been forecasting an increase to 0.7% and 1.4% for headline and core inflation respectively, particularly given the drop in the value of the pound which boosts the price level of imported goods. The euro also posted strong gains versus the pound as it climbed to a 2-week high of 0.8512.

The Bank of England will meet on Thursday and the outcome is keenly awaited given the improvement in UK economic indicators (particularly survey data) after the initial Brexit shock subsided. The key question is whether the Bank will choose to wait in the delivery of additional stimulus.

The lack of major data releases and Fed speakers out of the United States limited the action in EUR/USD and USD/JPY. More important US numbers will be available on Thursday and Friday with the release of retail sales and inflation.

After the end of the US session, the American Petroleum Institute will release its energy inventory estimates. Oil stayed in the $45-46 a barrel range today, following a rally to 46.50 yesterday that fizzled out.