EUR/USD has edged lower in the Tuesday session. Currently, the pair is trading at 1.2309, down 0.20% on the day. On the release front, Germany PPI surprised the markets with a decline of 0.1%, shy of the estimate of +0.1%. This marked the first decline since May. German ZEW Economic Sentiment plunged to 5.1 points, down from 17.8 a month lower. This reading was well off the forecast of 13.1 points and marked the lowest reading since September 2016. Eurozone ZEW Economic Sentiment followed the same trend, dropping to 13.4, compared to a forecast of 28.1 points.
After months of wrangling between Britain and the EU, the two sides announced that there would be a transition period following the UK’s departure from the EU in March 2019. The transition deal will kick in at that time, lasting until December 2020. The deal covers the rights and status of EU citizens in the UK and British citizens in the EU, and allows the UK to pursue new trade agreements during that time. There are still issues to iron out, such as the Northern Ireland border. The transition period is a major, positive development, in that it will enable Britain to enjoy the benefits of the common market, albeit without a seat at the table.
Sterling Strong Despite Weaker Inflation
The Federal Reserve is poised to raise interest rates on Wednesday, which would mark the first hike of 2018. According to the CME Group, the odds of a quarter-point raise stand at an impressive 91 percent. What can we expect from the Fed during the year? The current Fed projection remains at three hikes, but a robust US economy has raised speculation that the Fed could accelerate the pace to four hikes, which would be good news for the US dollar. Investors will be keeping a close eye on key US data, especially upcoming inflation indicators. If these numbers improve, we’re likely to see four rate hikes in 2018.
