EUR/USD continues to head south this week. In the Wednesday session, the pair is trading at the 1.05 line, it’s lowest level since January 11. On the release front, German Ifo Business Climate improved to 111.0, beating the estimate of 109.6 points. Eurozone Final CPI remained at 0.9%, matching the forecast. The US releases Existing Home Sales and the Federal Reserve will publish the minutes of the January policy meeting. On Thursday, the US releases unemployment claims, with an estimate of 242 thousand.
The Federal Reserve will be on center stage on Wednesday. The central bank finally pressed the rate trigger in December, a full year after the previous rate hike. Last week, Fed Chair Janet Yellen strongly hinted that that another hike is on the way, leaving the markets to speculate on the timing of a hike – will it be in March or June? Even though the US economy is solid and we could see several rate hikes in 2017, market uneasiness over the Trump administration continues to grow, dampening investor appetite for risk. Trump continues to have difficulty filling in key cabinet positions and the media continues to probe connections between Trump officials and Russia. Trump is yet to outline a clear and coherent economic policy, although he has promised to unveil a tax package in the next few weeks. After Trump’s shock win in November, post-election euphoria boosted the markets. However, Trump’s first month in office has been marked by controversy and confusion, which has unsettled the markets.
German numbers continue to impress this week. German Ifo Business Climate improved to 111.0 in February, up from 109.8 a month earlier. Inflation is pointing upwards, as PPI climbed o.7% in January, above the estimate of 0.3%. This marked a 3-month high. This was followed by strong Manufacturing PMI reports from Germany and the Eurozone, which continue to indicate expansion. On Thursday, Germany releases GDP and Consumer Climate.
Recent eurozone numbers have been steady, with the economy expanding and inflation levels moving upwards. Nonetheless, the ECB appears reluctant to make any changes to current monetary policy. The ECB released the minutes of its January policy meeting on Thursday. The minutes indicated that the central bank continues to have little appetite for reducing stimulus. Policymakers stated that the recent climb in inflation could prove to be temporary and there is political uncertainty ahead. France and Germany, the two largest economies in the eurozone, go to the polls later this year, as does the Netherlands. Inflation has moved close to the central bank’s target of around 2 percent, prompting calls from Germany and elsewhere to tighten monetary policy. At this point in time, a majority of ECB policy makers are in favor of maintaining course the asset-purchase program, which ends in December. However, if growth and inflation numbers continue to climb, there will be increased pressure and louder voices calling for tighter monetary policy, which would be bearish for the stock market.
