The euro continues to have a quiet week. In the Thursday session, EUR/USD is trading at 1.1647, up 0.24% on the day. On the release front, there were a host of Manufacturing PMIs out of the eurozone. German Final Manufacturing PMI remained unchanged at 60.5, just shy of the estimate of 60.6 points. Eurozone Final Manufacturing PMI improved to 58.5, close to the forecast of 58.6 points. German Unemployment Change declined by 10 thousand, close to the estimate of -11 thousand. In the US, today’s highlight is unemployment claims, which is expected to tick upwards to 235 thousand. Employment data will be in the spotlight on Friday, as the US releases Average Hourly Earnings, Nonfarm Payrolls and the unemployment rate. As well, we’ll get a look at ISM Nonfarm Manufacturing PMI.
A strong manufacturing sector has been an important factor in the stronger eurozone economy, and September Manufacturing PMIs continue to point to expansion early in the fourth quarter. The German Manufacturing PMI held at 60.6, its highest level since April 2011. Eurozone Manufacturing PMI isn’t far behind at 58.6, and accelerated for a third straight month. The German employment market remains robust, as unemployment rolls have declined for three straight months. Unemployment has now dropped in all but two readings since June 2015.
There were no surprises from the Federal Reserve on Wednesday, as policymakers held the benchmark rate at 1.25 percent. The Fed indicated that a rate increase is very likely at the December meeting, and was careful not to change any of the wording in its statement regarding future rate hikes. The rate statement noted that hurricanes had caused a decline in payrolls in September, but the Fed did not expect the hurricanes to “materially alter the course of the national economy over the medium term.” The markets appear in line with this sentiment, as the forecast for Friday’s nonfarm payrolls is a robust 311 thousand, after a dismal decline of 33 thousand in September.
The markets have priced in a December rate hike in the US at 96 percent, but what can we expect in 2018? This will depend to a large degree on the new chair of the Fed, who will take over from Janet Yellen in February. Janet Yellen will wind up her 3-year term in February, and she is not expected to be reappointed by President Trump. The front runner is economist Jerome Powell, who is expected to maintain the Fed’s current policy of incremental rates. Trump is expected to make his choice on Thursday, ahead of his trip to Asia.
