EUR/USD has edged lower in the Thursday session, wiping out the gains seen on Wednesday. Currently, the pair is trading at 1.1349, down 0.29% on the day. On the release front, German and eurozone manufacturing PMIs slowed in December and missed their estimates. Later in the day, the ECB will set interest rates, with a follow-up press conference with ECB President Mario Draghi. In the U.S, the key event is unemployment claims, which is expected to rise to 219 thousand. On Friday, Germany releases Ifo Business Climate.
The eurozone manufacturing sector continues to show worrying signs of a slowdown. Eurozone manufacturing PMI fell to 50.5, just above the 50-point threshold which separates contraction from expansion. This marked a six successive drop in the score. Germany fared even worse, as manufacturing PMI slipped to 49.7, pointing to contraction. It was the lowest reading since June 2013. The weak reading underscore the toll that the global trade war has taken on the eurozone and German economies, with less demand for exports weighing on manufacturing production.
With the eurozone economy showing signs of a slowdown, the ECB is likely to maintain current monetary policy. The ECB terminated its massive stimulus package in December, although stimulus has continued as the ECB is reinvesting bonds that mature, so the balance sheet has not been reduced. With the economy struggling, any rate increase remains a long way off. Analysts had predicted a rate hike in the third quarter just a few months ago, but are now saying that the ECB won’t raise rates before the fourth quarter. The markets will be looking for clues from the ECB statement and remarks from Mario Draghi with regard to future monetary policy.
