EUR/USD is unchanged in the Wednesday session, as the euro continues to have a quiet week. Currently, the pair is trading at 1.0680. On the release front, services reports are in focus. German Final Services PMI improved to 55.6, matching the forecast. Eurozone Final Services PMI climbed to 56.5, short of the forecast of 56.0 points. The US will release ADP Nonfarm Payrolls as well as the ISM Non-Manufacturing PMI. As well, the Federal Reserve releases its minutes from the March policy meeting.
Eurozone indicators continue to point upwards, and German and Eurozone Services PMIs pointed to expansion in March. The German release hit a 15-month high, while the Eurozone indicator jumped to a 71-month high, although it missed expectations. The euro shrugged off these strong numbers, as it continues to have an uneventful week. EUR/USD dropped 1.9 percent last week, marking its worst weekly decline since November 2016. Soft inflation numbers late in the week disappointed the markets and soured sentiment on the continental currency. German Preliminary CPI posted a weak gain of 0.2%, short of the forecast of 0.4%. This was followed by Eurozone Flash CPI Estimate, which slipped to 1.5%, missing the forecast of 1.8%. Although inflation levels have improved to their highest levels in years, they remain below the ECB target of 2.0%, so the central bank still has some breathing room and isn’t under immediate pressure to tighten monetary policy. The ECB’s asset purchase program of EUR 60 billion/mth is scheduled to expire in December.
What’s next for the Federal Reserve? With the US economy continuing to perform well, the discussions around the monetary policy tables are not whether the Fed will raise rates, but how many hikes we will see in 2017. The markets will be paying close attention to the minutes of the March meeting, when the Fed raised rates by a quarter-point, to a range of 0.75%-1.00%. Any hints about the timing of the next hike, as well as the tone of the minutes are factors which could move the currency markets on Wednesday. The markets considered the rate statement overly cautious, and this sentiment sent the US dollar broadly lower in March. If the reaction to the minutes is one of disappointment, the dollar could again experience broad losses.
