EUR/USD continues to have a quiet week. Currently, the pair is trading at the 1.06 level. On the release front, German WPI came in at 0.0%, short of the forecast of 0.4%. In the US, there are no major events on the schedule. President Donald Trump will conduct an interview with the Fox Business Network, and will discuss health care, tax reform, and the crisis in Syria. On Thursday, the US releases three key indicators – PPI, unemployment claims and UoM Consumer Sentiment.
The eurozone economy has improved in the first quarter in 2017, and this has been reflected in investor confidence levels, which have moved higher. Eurozone Sentix Investor Confidence climbed to 23.9 points in April, pointing to strong optimism among investors and analysts. German ZEW Economic Sentiment, which surveys the mood of German investors, sparkled in April, jumping to 19.5 points, well above the forecast of 13.2 points. This marked the strongest reading since August 2015.
On Monday, Federal Reserve Chair Janet Yellen said that with the economy close to full employment and 2 percent inflation, Fed policymakers were looking to reduce the support that the central bank was providing the economy. The minutes of the March meeting indicated that the Fed plans to trim the $4.5 trillion balance sheet, which has ballooned as a result of the huge asset-purchase program which started in 2008. The Fed plans to raise rates twice more in 2o17, with the next rate expected in June. Yellen emphasized that the Fed’s policy stance is neutral, as interest rate increases will be gradual, given that the economy is growing at a moderate pace.
US Nonfarm Payrolls was unexpectedly soft in March, as the economy produced just 98 thousand jobs, compared to an estimate of 174 thousand. However, the good news is that the weak reading was not accompanied by higher unemployment numbers. The unemployment rate dropped to 4.5% and jobless claims fell sharply to 234 thousand. This means that the Fed is unlikely to lose any sleep over the weak payrolls report, and will remain on course to raise rates twice more in 2017 (a majority of FOMC voting members favor two more hikes, while some members have called for three more hikes this year). According to the CME Group, the markets have circled June as the next likely date for a hike, which is priced in at 67 percent.
