EUR/USD has ticked higher in the Thursday session. Currently, the pair is trading at 1.1567, up 0.10% on the day. On the release front, GfK Consumer Climate remained pegged at 10.7, edging above the estimate of 10.6 points. EU leaders are meeting in Brussels for a 2-day summit. Later in the day, Germany releases Preliminary CPI, with an estimate of 0.2%. In the U.S, Final GDP is forecast at 2.2%, identical to the reading of Preliminary GDP in May. As well, unemployment claims is expected to edge up to 220 thousand. On Friday, Germany releases retail sales and the eurozone publishes CPI reports. The U.S will publish consumer spending and inflation data, as well as consumer confidence.
European Union leaders are meeting in Brussels, with some dark clouds on the horizon. High on the agenda is the escalating trade war, which has been marked by the U.S and China imposing tariffs on each other’s goods. The EU and the U.S have also been involved in a tariff spat, with the EU firing the latest salvo when it slapped tariffs of 25% on $3.3 billion of U.S products. This move was in response to U.S tariffs on EU steel and aluminum imports. With President Trump not showing any intent to blink first, all eyes will be on the summit, as the markets wait for a response (olive branch?) from EU leaders.
Another key issue will be Brexit, as the sides remain far apart on a number of issues, with Britain scheduled to leave the club in March 2019. The EU had said that it wanted issues such as the Irish border to be resolved by the June summit, but this won’t happen, and the EU will now have to set another deadline, with time running out. There have been various suggestions for a type of customs union arrangement between Ireland and Northern Ireland, but the May government is split on the issue. European leaders are exasperated with the lack of progress in the Brexit talks and could issue a tough statement that the EU could split from Britain without an agreement in place.
The U.S economy continues to perform well, buoyed by steady expansion and a labor market that is close to capacity. However, the trade war between the U.S and its major partners could upset this rosy picture. The Federal Reserve now plans to raise rates four times in 2018 (up from three), but a global trade war could force the Fed to revise its forecast back to three hikes. On Tuesday, Atlanta Fed bank president Raphael Bostic said that if the trade war intensified, he would vote against a fourth rate hike, due to downside risks to the economy. Fed Chair Jerome Powell sounded pessimistic about the economic effects of trade tensions at an ECB forum earlier in June, and if other Fed members express concerns, the Fed could delay a fourth hike until 2019.
