The euro is showing little movement in the Wednesday session. Currently, EUR/USD is trading at 1.1750, up 0.07% on the day. In economic news, German Final CPI improved to 0.3%, matching the estimate. This marked a 4-month high. In the eurozone, Employment Change improved remained unchanged at 0.4%, matching the forecast. Industrial Production rebounded with a gain of 0.2%, above the forecast of 0.0%. In the US, CPI is expected to improve to 0.4%. The Federal Reserve meets for its monthly policy meeting, and is widely expected to raise rates to a range between 1.25% to 1.50%. Wednesday will be busy. Germany and the eurozone release manufacturing PMIs, and the ECB will make a rate announcement. The US will release retail sales reports as well as unemployment claims.
All eyes are on Janet Yellen & Co., as the Federal Reserve meets later on Wednesday. The CME Group has priced in a quarter-point rate hike at 87%, so it would be a huge surprise if the Fed doesn’t press the rate trigger.Even though this move has been priced in, rate hikes tend to trigger a surge of confidence among investors, and also makes the US dollar more attractive against its rivals. Traders should therefore be prepared for the US dollar to move higher after the rate announcement. Today’s move could be the start of a series of incremental hikes, as the odds of a January increase stand at 86%. The Fed has hinted that it could raise rates up to three times in 2018, but the pace of increases will depend to a great extent on the strength of the economy and inflation levels. The US labor market remains at full capacity and various sectors in the economy are reporting a lack of workers. Still, this has not translated into stronger wage growth, despite predictions from Janet Yellen and other Fed policymakers that a lack of workers is bound to push up wages.
Investors remain confident about the German and eurozone economies, but the optimism was more measured in December. The well-respected ZEW Economic Sentiment indicator, a confidence barometer of institutional investors, slowed in December in Germany and the eurozone. Economic conditions are good, but investors have to keep an eye on political developments as well, and there are some worrisome developments. Germany still remains without a government, and uncertainty over Brexit continues to hover over the European Union. The euro reacted to the soft ZEW reports with slight losses on Tuesday.
