EUR/USD has steadied on Tuesday, after starting the week with considerable losses. Currently, the pair is trading at 1.1484, up 0.17% on the day. It’s another quiet day on the release front, with no major indicators. German WPI gained 0.5% in September, its highest level since May. The eurozone will release consumer confidence, which is expected to post a second straight reading of -3 points. In the U.S, the Richmond Manufacturing Index is expected to drop to 25 points.
The ECB holds its next policy meeting on Wednesday, and the bank is expected to hold the course with interest rate levels, which have been pegged at a flat 0.00% for almost three years. However, there are plenty of trouble spots, including the spike in Italian bond yields, the Brexit impasse and continuing volatility in global equity markets. Despite these issues, the ECB is expected to end its massive stimulus program in December. The markets are now looking ahead to 2019, focusing on the timing of a rate hike. The ECB has adhered to the line that rates will stay on hold “through the summer of 2019”. However, it’s unlikely that policymakers can ignore the issue of a rate hike, which would be a historic move, as the bank last raised rates in 2011. The head of the Dutch central bank, Klaas Knot, recently said that the ECB will have to initiate discussions over the timing of a rate hike in January. Investors will be keeping a close eye on the ECB, and any hints of an interest rate move could send the euro upwards.
Relations between the U.S and China remain tenuous, with the markets nervous that the trade war could worsen. The U.S Treasury Department released its semi-annual report on foreign exchange rates on Thursday, and there was some relief in the markets as the report did not name China as a currency manipulator. Still, the report said that the U.S was “deeply disappointed’ with that China refuses to disclose the extent of its foreign currency intervention. The Chinese yuan has slipped some 9 percent since April, and U.S officials are concerned that China has deliberately weakened the currency in order to counter U.S tariffs on Chinese goods, and will continue to monitor China’s currency practices.
