The euro continues to show little movement this week, and has inched higher in the Tuesday session. Currently, EUR/USD is trading at 1.1140. On the release front, there are no major events in the eurozone, so it could remain a quiet day for the pair. The US will release Existing Home Sales, which is expected to dip to 5.54 million. As well, the weekly Crude Oil Inventories will be published, with a forecast of -1.2 million barrels. On Thursday, the US releases unemployment claims.
The well-respected German BDI Federation of Industry added its voice to the chorus, saying that Germany’s economic output would increase by 1.5%. At the same time, the BDI counseled caution, noting that the economy had been buoyed by a weaker euro, lower oil prices and the ECB’s accommodative monetary policy. All three of these are ‘external factors’, in the sense that Germany has limited influence on them, and a significant change in any one factor could hamper the country’s economy.
The Federal Reserve has now raised twice this year, each time by 25 basis points. The Fed has hinted at one more rate in the second half of 2017, and the markets have circled December as the most likely date for a rate move. The CME Group has pegged the odds of a September hike at just 13%, compared to 18% a week ago. However, the odds for a December increase are at 49%, and this could increase if Fed policymakers continue to wax positive about the economy. Earlier this week, Federal Reserve of New York President Charles Dudley continued the upbeat message, cautioning the Fed against halting its current tightening cycle. Dudley said that the tight labor market should lead to higher wages, which in turn would push inflation to the Fed’s target of 2.0%. The markets like what they are hearing – not just the positive spin on the economy, but also that the Fed has signaled that it plans to reduce the bloated balance sheet of $4.2 trillion.
