EUR/USD has gained ground in the Monday session. Currently, the pair is trading at 1.1337, up 0.28% on the day. On the release front, eurozone inflation headed lower in November. The eurozone trade surplus narrowed for a second straight month, falling to EUR 12.5 billion. This was short of the estimate of EUR 14.2 billion. There are no major U.S. releases. The Empire State Manufacturing Index is expected to drop to 20.1 points. On Tuesday, Germany releases Ifo Business Climate and the U.S publishes building permits and housing starts.
In the U.S, weak inflation levels are another sign that the economy is slowing down. CPI dropped to 0.0% in November, down from 0.3% a month earlier. This marked the lowest level since May. Core CPI remained pegged at 0.2 percent. The weak readings can be attributed to falling oil prices, which has led to a sharp decline in gasoline prices. On an annualized basis, inflation gained 2.2 percent in November, down from 2.5 percent in October. With the U.S. economy showing signs of slowing down, and the global trade war taking a bite out of the global economy, inflation could continue to head lower as we head into 2019. This has led to a reassessment at the Federal Reserve of monetary policy. Earlier in the year, the Fed was sending messages that it would raise rates three or four times next year. This has been drastically scaled back, with some analysts predicting only one rate hike in 2019.
There were no surprises from the ECB policy meeting on Thursday. As expected, the ECB formally ended its 2.6 trillion euro bond-purchase scheme. The program was implemented in order to kick-start the economy and raise ultra-low inflation levels. At a press conference after the meeting, ECB President Mario Draghi said the stimulus scheme had not only boosted growth in the eurozone, but was “in some cases the only driver of this recovery”. With the bond-purchase program being laid to rest, interest rates will again become the ECB’s primary policy tool. With the eurozone experiencing a slowdown, no raise rate hike is expected until well into 2019.
At the Thursday meeting, the ECB downgraded its growth forecasts for the eurozone – from 2.0% in September to 1.9% in December for 2018, and from 1.8% in September to 1.7% in December in 2019. Mario Draghi added that headline inflation is also expected to drop in the coming months, due to weaker economic conditions.
