EUR/USD is down slightly in the Thursday session, after posting strong gains on Wednesday. Currently, the pair is trading at 1.1527, down 0.13% on the day. On the release front, the ECB releases the minutes of its December policy meeting. In the U.S., unemployment claims are expected to drop to 231 thousand, and Fed Chair Jerome Powell will speak at event in Washington. On Friday, the U.S. releases CPI reports, which should be treated as market-movers.
The ECB will be in the spotlight for the first time this year, with the release of the December minutes. At this meeting, policymakers finally terminated QE, the bank’s massive stimulus program. Now that the ECB has weaned the eurozone economy off stimulus, investors will be interested in the bank’s view of the economy – are growth prospects forecast to improve? Although the eurozone export and manufacturing sectors have softened due to the global trade war, the euro escaped the fourth quarter with only small losses. If the minutes are hawkish, the euro could capitalize and head higher.
The U.S. dollar’s retreat continued on Wednesday, after the release of the FOMC minutes of the December meeting. At the meeting, the Fed raised rates for a fourth time in 2018, culminating a very aggressive stance. This was reflected in the rate statement, but then came the thumbs-down from investors, who wanted a more dovish approach, and sent the equity markets into a tailspin. Fed policymakers have since made a sharp U-turn and are sounding much more cautious about future rate hikes. The minutes noted low inflation meant that the Fed can “afford to be patient about further policy firming”. Even more striking, the minutes revealed that at the December meeting, some policymakers opposed a rate hike, arguing that inflation was too low to warrant higher rates. The new dovish stance from the Fed has relieved investors and helped stabilize the stock markets, but has hurt the U.S. dollar, with some analysts predicting a cut in rates late this year.
