The euro has paused in the Thursday session, after posting strong gains on Wednesday. Currently, EUR/USD is trading at 1.1824, down 0.01% on the day. In economic news, it’s a busy day in the eurozone and the US. Manufacturing PMIs beat their estimates in France, Germany and the eurozone, with strong readings of 59.3, 63.3, and 60.6 points respectively. On the services side, Services PMIs beat the estimates in Germany and the eurozone, but fell short in France. Later in the day, the ECB is expected to maintain interest rates at a flat 0.00%. In the US, consumer spending indicators are expected to improve in November, with Core Retail Sales and Retail Sales forecast at 0.6% and 0.3%, respectively. On Friday, the eurozone releases trade surplus and the US publishes Empires State Manufacturing Index.
There were no surprises from the Federal Reserve, which raised rates on Wednesday, bringing the benchmark rate to a range between 1.25% and 1.50%. This marked the third rate hike in 2017, testimony to the strong performance of the US economy. The Fed statement was optimistic about the economy, noting that the labor market “remained strong”. It also lowered its unemployment forecast in 2018 from 4.1% to 3.9%, and revised growth for 2018 from 2.1% to 2.5%. Despite this rosy prognosis, the dollar was broadly down after the announcement. Why? One reason is the sore point in the economy – inflation. The Fed has not changed its September forecast for rate hikes next year, with the Fed dot plot indicating that three rate hikes are projected for 2018. This disappointed some investors who would like to see four increases next year. As well, the rate statement said that the Fed did not expect the tax reform legislation to have any long-term effect on the economy, contradicting White House claims that the legislation would trigger substantial growth in the economy.
The markets will now shift to the ECB, which will set interest rates later on Thursday. The ECB is widely expected to maintain current rates, so investors will be focusing on the follow-up press conference with ECB President Mario Draghi. If the ECB sends out an optimistic message about the economy, the euro rally could resume. Meanwhile, German indicators continue to sparkle. Manufacturing PMI hit a new record, climbing to 63.3 points. The PMI Composite Output Index, which measures business activity, improved to 58.7, its highest level since 2011. A robust German economy has been the locomotive for the eurozone, which has rebounded in 2017 with stronger growth and lower unemployment.
