EUR/USD has edged lower in the Wednesday session. Currently, the pair is trading at 1.1436, down 0.26%. On the release front, Germany and the Eurozone posted manufacturing PMIs, with readings of 51.5 and 51.4, respectively. Market forecasts were on the money, as both readings matched the forecast.
The global trade war has taken a bite out of European and German exports, and this in turn has put a damper on the manufacturing sectors. European and German manufacturing PMIs continued to fall in December, marking a fifth consecutive decline, as manufacturing growth has stagnated. If the negative trend continues, the euro will be under increasing pressure.
U.S. and Chinese teams will meet next week to tackle trade issues, and any progress in the talks would likely boost investor confidence. At the same time, the U.S. has said if the talks fail, it will impose heavy tariffs on Chinese products on March 1, so traders should be prepared for some volatility from EUR/USD in the weeks ahead. Earlier in the week, President Trump said that ‘big progress’ had been made with China, but with the sides yet to meet face-to-face, the markets are not putting much stock in Trump’s remarks.
After four rate hikes in 2018, the Federal Reserve will be drastically easing up on raising rates in 2019. Just a few months ago, there was heady talk of three or four rate hikes in 2019, but the Fed made an abrupt U-turn, saying the “neutral rate range” had been reached. Analysts expect one rate hike in 2019, as this year’s hikes and the global trade war have lessened the pace of expansion in the U.S. economy. According to the CME Group, the likelihood that the Fed will stay on the sidelines in January and March stands at 98% and 93%, respectively. This dovish stance from the Fed could weigh on the dollar in the coming months.
