EUR/USD continues to gain ground, and has moved higher in the Thursday session, after gains on Wednesday. Currently, EUR/USD is trading at 1.1935, up 0.38% on the day. There are no eurozone data releases on the schedule. In the US, today’s key event is unemployment claims, which is expected to drop to 240 thousand. On Friday, Germany releases Final CPI.
Christmas week is light on eurozone economic releases, so the markets will be paying close attention to German CPI, which will be released on Friday. The indicator rose 0.3% in November, marking a 4-month gain. The markets are expecting a gain of 0.5% for December. In the eurozone, annual average inflation inched up to 1.5% in November, up from 1.4% in October. This marked a multi-year high. Earlier this month, in a nod to stronger economic activity in 2017, the ECB raised its forecasts for growth and inflation for the eurozone from this year through to 2019. Still, inflation remains well below the ECB target of around 2.0%, and ECB policymakers are unlikely to announce an end to their stimulus package until inflation moves closer to the 2.0% target.
US housing numbers continue to beat expectations, as Pending Home Sales surprised the markets with a gain of 0.2%. Last week, Housing Starts came in at 1.30 million, beating the forecast of 1.25 million. On Tuesday, New Home Sales sparkled, with a gain of 733 thousand. This easily beat the estimate of 654 thousand, and was the highest reading since September 2007. On Thursday, the US releases unemployment claims, which is expected to drop to 241 thousand.
With the US economy expanding above 3% in the third quarter, the Federal Reserve remains on track for another rate hike in January. The CME Group has pegged the odds of a January hike at 100%, which could give a boost to the US dollar. If the economy continues its impressive pace of growth above 3%, the Fed could raise rates up to four times in 2018. Despite strong economic conditions, the Federal Reserve’s inflation target of 2.0% remains elusive. Fed Chair Janet Yellen and other FOMC members have said that they expect that the strong labor market will lead to higher inflation. Although this is yet to materialize, of significance to the markets is the commitment of the Fed to press ahead with rate hikes despite low inflation.
