EUR/USD continues to head higher this week. In the Wednesday session, the pair is trading at 1.1410, up 0.40% on the day. On the release front, German PPI dipped to 0.1% in November, its weakest gain since February. In the U.S., there are no major indicators. All eyes will be on the Federal Reserve, which is expected to raise rates to a range between 2.25 and 2.50 percent.
The euro is enjoying a strong week, with gains of close to 1 percent. The markets are expecting the Federal Reserve is expected to raise interest rates on Wednesday, which would mark the fourth rate hike in 2018. The odds of a rate hike have dropped sharply – only last week, the odds of a hike stood at 77%, but are currently at 66%.
A key factor in the drop is the latest equity sell-off. On Monday, the S&P 500 Index sank to its lowest level since October 2017. Rate hikes are unusual when stock markets are in a downward spiral, but the Fed is likely to press the rate trigger. At the same time, the Fed may try to soothe the nervous markets with a cautious message about further tightening next year, which has boosted the euro ahead of the meeting. Just a few months ago, there was heady talk of three or four rates in 2019, but analysts are now predicting just one hike, as the U.S economy is showing signs of slowing down.
After a weak third quarter of growth in the eurozone, there are serious concerns that the slowdown will affect fourth quarter numbers as well. ECB policymakers have plenty of headaches, whether domestically or abroad. The global trade war has taken a bite out of German and 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 will likely face more headwinds before the end of the year.
