EUR/USD has steadied in the Friday session, after sharp losses on Thursday. Currently, the pair is trading at 1.1603, up 0.30% on the day. On the release front, German WPI posted a strong gain of 0.8%, well above the estimate of 0.3%. In the eurozone, Final CPI rose to 1.9% and Final Flash CPI climbed to 1.1.%, as both readings matched their estimates. As well, the eurozone trade surplus narrowed to EUR 18.1 billion, shy of the estimate of EUR 21.2 billion. In the U.S, the Empire State Manufacturing Index is expected to drop to 19.1 points. We’ll also get a look at UoM Consumer Confidence, which is forecast to soften to 98.5 points.
The euro plunged to a 2-week low on Thursday, in response to a dovish rate statement from the EC and remarks from ECB President Draghi. The ECB pledged to taper its bond-purchase program to EUR 15 billion/mth, in October, down from the current pace of EUR 30 billion/mth. The program will wind up at the end of the year. However, investors detected a ‘dovish flavor’ to the announcement, as the ECB added that interest rates would remain steady “at least through the summer of 2019”, giving policymakers plenty of wiggle-room to delay any rate hikes. The markets were anticipating a rate hike shortly after the end of the bond-purchase program, so this announcement was a disappointment. Draghi sounded dovish in his press conference, saying that the eurozone economy was facing “increasing uncertainty”. Draghi was likely referring to the G-7 meeting which ended in disarray as well as the election of a euro-sceptic government in Italy. The ECB also lowered its growth forecast for the eurozone to 2.1%, down from 2.4% earlier this year.
As widely expected, the Federal Reserve raised interest rates by a quarter-point, to a range between 1.75 percent and 2.00 percent. Fed Chair Jerome Powell sounded hawkish in his press conference, saying that the economy was performing well and that “overall outlook for growth remains favorable”. This message echoed the rate statement, in which policymakers said that “economic activity has been rising at a solid rate”, pointing to stronger consumer spending and business investment. What was may have been the most notable development was that the Fed rate projections were revised upwards, predicting two additional rate hikes in 2018, for a total of four hikes. Until now, the Fed had projected three rate hikes this year. This represents a nod to the strength of the U.S economy and could boost the dollar against its rivals.
