The euro is having a quiet week, and has inched higher in the Thursday session. Currently, EUR/USD is trading at 1.1160. On the release front, there are no major events in the eurozone. The US will release unemployment claims, which is expected to rise to 241 thousand. On Friday, Germany and the eurozone release manufacturing PMIs, and the US will publish Home Sales.
Germany’s economy, the largest in the euro-area has been thriving. Growing global demand for German products has boosted the export and manufacturing sectors. There were jitters in political and business circles when Donald Trump was elected, as Trump campaigned on a protectionist, “America first’ agenda. However, these concerns have diminished, as the economy has performed well and Trump has been in damage control mode, as he focuses on domestic scandals. Earlier this week, the well-respected German BDI Federation of Industry added its voice to the chorus of accolades for the German economy. The BDI said that Germany’s economic output would increase by 1.5% this year. However, 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 are ‘external factors’, in the sense that Germany has limited influence on them, and a significant change in any one factor could weigh on economic growth.
At last week’s policy meeting, the Federal Reserve said it would reduce its balance sheet in the near future. The balance sheet has ballooned to $4.5 trillion, which accumulated after the 2008 financial crisis, when the Fed went on a bond-buying spree to stimulate the economy. The reduction will be gradual, but still marks an important change in direction for the central bank. It’s not clear when the Fed will start to trim, but FOMC member Patrick Harker said on Wednesday that no decision had been made. Harker said that he was in favor of the reduction commencing in September. The Fed has hinted at one more rate hike 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.
