EUR/USD has moved higher in the Tuesday session, continuing the upward movement seen on Monday. Currently, the pair is trading at 1.1373, up 0.23% on the day. On the release front, German Ifo Business Climate dipped to 101.0, down from 1o2.0 and shy of the estimate of 101.8. This is the fourth straight drop for the indicator, as business confidence continues to weaken, albeit slowly.
A milestone was reached last week, as the ECB officially terminated its bond-purchasing program (QE), after three years. The program pumped some 2.6 trillion euros into the economy, and played an important role in boosting growth and inflation levels. However, the move comes at a time when the eurozone economy has slowed down, after a strong performance in the first half of 2018. Final CPI dropped to 1.9% in November, down from 2.2% a month earlier. This was below the initial forecast of 2 percent.
After a weak third quarter of growth in the eurozone, there are serious concerns that the slowdown will affect fourth quarter numbers as well. Global trade tensions have taken a bite out of eurozone exports, and uncertainty over Brexit and the Italian budget have soured investor confidence, which has put pressure on the euro. EUR/USD has declined 2.7% since July 1, and faces more headwinds before the end of the year.
The Federal Reserve is expected to raise interest rates on Wednesday, which would mark the fourth rate hike in 2018. The CME has pegged the odds of a rate hike at 69%, down from 80% just one week ago. A key factor in the drop is the latest equity sell-off. The week started poorly, as the S&P fell on Monday to its lowest level since October 2017. Rate hikes are unusual when stock markets are swooning, so traders should be prepared for the Fed to send a dovish message to the markets, along with a quarter-point rate hike.
