The euro has resumed its rally in the Friday session. Currently, EUR/USD is trading at 1.2463, up 0.51% on the day. On the release front, there are no major events in the eurozone. It’s a busy day in the US, highlighted by Advance GDP, which is expected to post a strong gain of 3.0%. As well, Core Durable Goods is forecast to rebound to 0.5%, but Durable Goods is expected to slow to 0.9%.
The ECB maintained interest rates at a flat 0.00%. and ECB President Mario Draghi was dovish in his follow-up remarks, which kept the euro in check on Thursday. Draghi said that interest rates would not rise until well after the ECB’s asset-purchase program (QE) was over. The QE program will not end until September at the earliest, so Draghi essentially ruled out any rate hikes before early 2019. Draghi added that the ECB was prepared to increase QE in “size or duration”, a reminder to the markets that it is premature to expect normalization anytime soon. A new headache for Draghi is the streaking euro, which has hit 3-year highs against the US dollar. Investors are worried that a stronger euro could hurt exports and company earnings. EUR/USD has jumped 3.6% in January, as the dollar continues to struggle.
There will be a changing of the guard next month at the Federal Reserve, as Jerome Powell is set to replace Janet Yellen as chair of the powerful central bank. On Tuesday the Senate confirmed Jerome Powell as the next head of the Fed. The vote of 84-13 was a cakewalk, reflecting strong bipartisan support for Powell. The new chair is expected to continue Yellen’s monetary stance, which was marked by small, incremental rate hikes during a period of economic expansion. The Fed has started to trim its massive balance sheet, another vote of confidence in the strength of the economy. At the same time, Fed policymakers are divided over how to approach inflation, which remains below the Fed target of 2 percent, despite a strong economy and a red-hot labor market. The markets will be watching to see how the Fed, under Powell’s watch, responds to recent tax reform legislation, which is sure to have a significant impact on the US economy.
