EUR/USD has posted slight gains on Thursday, as the pair trades at the 1.08 level. Earlier in the day, the pair rose to 1.0818, its highest level since December 5. On the release front, Eurozone PPI improved to 0.7%, above the forecast of 0.5%. Later in the day, ECB President Mario Draghi will address a conference in Slovenia. In the US, today’s highlight is Unemployment Claims, with the markets expecting claims to drop to 251 thousand. Employment data will be under the spotlight on Friday, as the US releases Nonfarm Payrolls, Average Hourly Earnings and the unemployment rate.
As expected, the Federal Reserve didn’t make any moves on Wednesday, leaving the benchmark interest rate at 0.50%. The markets were hoping to glean something from the rate statement, but the Fed didn’t have much to add. The statement was upbeat about the economy and said that inflation continues to move towards the Fed’s target of 2 percent. Analysts expect the Fed to raise rates two or three times in 2017, with the odds of a rate hike by June priced in 70%. However, Donald Trump remains an enigma, as his economic policy remains unclear – Trump has promised substantial fiscal spending and tax cuts, but hasn’t provided any details. Just a few months ago, a red-hot economy had led to the Fed loudly hinting at gradual rate increases in 2017. However, with the markets showing increasing uneasiness about the new Trump administration, the Fed will likely change gears and adopt a wait-and-see attitude, watching what bills Trump gets through Congress and how the economy responds.
The German economy, the largest in Europe, is often viewed as the bellwether of the strength of the Eurozone economy. This week’s data out of Germany has been a mixed bag. There was positive news on Wednesday, as German Manufacturing PMI improved to 56.5, pointing to solid expansion. This was just shy of the estimate of 55.5. Earlier in the week, unemployment claims dropped by 26 thousand, as the unemployment rate dropped to 5.9% in January, its lowest level since reunification in 1990. However, key consumer indicators were unexpectedly soft. Germany’s economy continues to raise concerns, as consumer indicators have looked dismal this week. Retail Sales, the primary gauge of consumer spending, posted a sharp decline of 0.9%, its fourth decline in five readings. This reading comes on the heels of Preliminary CPI, which declined 0.6%, its first decline in 9 months.
