The euro continues to lose ground in the Wednesday session. Currently, EUR/USD is trading at 1.1754, down 0.33% on the day. On the release front, there are no major eurozone events on the schedule. In the US, Core Durable Goods Orders is expected to slow to 0.2%, and the estimate for Pending Home Sales is -0.5%. On Thursday, Germany releases Preliminary CPI, and the US will publish Final GDP and unemployment claims.
ECB President Mario Draghi was careful not to make headlines on Monday, in his testimony before the European Parliament Economic and Monetary Affairs Committee. Draghi acknowledged that there was uncertainty regarding the inflation outlook, adding that recent volatility in the exchange rate would require monitoring. Draghi remains committed to the ECB’s loose monetary policy, saying that “ample” accommodation is still needed in order to raise inflation levels. Some policymakers have come out in favor of tightening monetary policy, with the eurozone economy continuing to grow and unemployment falling. However, inflation remains well below the ECB target of just below 2 percent. Draghi told lawmakers that he is confident that the inflation target will be met, but that would require avoiding any hasty changes to current monetary policy and declared that the ECB would remain “patient and persistent”.
Janet Yellen weighed into the rate debate on Tuesday, and her hawkish comments have strengthened the US dollar. Yellen said she favored gradual rate increases, and voiced confidence that inflation levels would move higher. She added that if the Federal Reserve did not continue to raise rates, the red-hot labor market could become overheated, potentially causing a recession. Fed policymakers remain split on a December rate. On Monday, New York Fed President William Dudley made a strong case to raise rates. Dudley cited a soft US dollar and strong global growth as reasons why inflation would increase and also translate into stronger wage growth. Dudley said he expects inflation to reach the Fed’s target of 2 percent in the “medium term”, and predicted that the Fed would continue to gradually remove monetary accommodation. However, Chicago Fed President Charles Evans sent out a very different message, calling on the Fed to avoid another rate hike until wage and inflation levels moved higher. Evans said that inflation, which is running at around 1.4%, is too low, and wants to see “clear signs” that prices are moving higher before the Fed presses the rate trigger. For their part, the markets are more confident in a December move – the CME Group has pegged the odds of a December raise at 81%, while the odds were mired below 50% just a few weeks ago.
