EUR/USD has inched higher in the Monday session. Currently, the pair is trading at 1.1650, down 0.05% on the day. On the release front, it’s a quiet start to the week, with just two indicators. German Ifo Business Climate dropped to 101.7 points, just shy of the estimate of 101.8 points. The U.S will release New Home Sales, which is expected to climb to 665 thousand.
The euro had a quiet week, but could this be the calm before the storm? Trade tensions between the U.S and its trading partners continue to escalate, and friction between the EU and the Trump administration could have a negative impact on the euro. On Friday, the EU slapped retaliatory tariffs of some 25% on $3.3 billion of U.S goods. This move was in response to U.S tariffs on EU steel and aluminum imports. However, President Trump has more cards up his sleeves and has threatened to impose 20% tariffs on EU vehicles. Such a move could take a toll on German auto giants Daimler and BMW and could sour investors on the euro. The EU has enough on its plate without a trade war with the U.S, and has launched a complaint over the U.S tariffs with the World Trade Organization. Still, the EU has not shied away from retaliatory moves, with EU Commission President Jean-Claude Juncker saying that the EU’s response would be ‘clear by measured’.
The simmering trade dispute between the U.S. and its major trading partners remains a critical issue for global markets. The heads of central banks are concerned, and last week, Jerome Powell and Mario Draghi sounded gloomy about the repercussions that a trade war could have on economic growth and monetary policy. On Sunday, the Bank of International Settlements (BIS), also weighed in. The BIS acts as an umbrella group for some 60 central banks. The head of the BIS, Augustin Carstens, warned that recent protectionist moves could hamper global growth and financial stability, and could have negative side effects on the currency markets. At the same time, the BIS expressed support for the Federal Reserve raising interest rates gradually and for the ECB heading towards normalization as it winds up its massive asset program.
