EUR/USD continues to post losses this week. In the Tuesday session, the pair is trading at 1.1449, down -0.37% on the day. There are no key eurozone or U.S. events on the schedule. Germany’s trade surplus has climbed to EUR 18.3 billion, well above the estimate of EUR 15.9 billion. On Wednesday, Germany releases the yield on 10-year bonds. The U.S. will publish PPI and the U.S Treasury Currency report, a semi-annual publication.
Traders are awaiting the U.S Treasury’s next foreign exchange report, which was last released in April. In that report, the U.S did not name any of its major partners as currency manipulators, but it did criticize China for the “non-market direction” of its economy. Since then, the Trump administration has imposed some $200 billion in tariffs on Chinese goods. China has retaliated with its own tariffs on U.S goods, and there has been speculation that China could respond to the U.S tariffs by devaluating the Chinese yuan, in order to bolster Chinese exports. In 2015 and 2016, the markets dropped sharply on fears that China would implement a major devaluation of its currency. The report should be treated as a market-mover.
With the ECB on track to wind up its stimulus program at the end of the year, the markets are focusing on the timing of a rate hike next year. The ECB has stated that it will not raise rates before the “end of the summer”, which many analysts have interpreted as September 2019. However, inflation has climbed significantly in the eurozone, and the ECB could opt to raise interest rates before September in order to curb inflation. Besides inflation, ECB policymakers will have to weigh other factors such as the U.S-China trade war when deciding when to raise interest rates.
