EUR/USD has ticked higher in the Monday session. Currently, the pair is trading at 1.1468, up 0.08% on the day. On the release front, it’s a quiet day. German WPI shocked with a decline of 1.2%, its weakest reading since December 2008. Eurozone industrial production fell 1.6%, much worse than the forecast of a 0.3% gain. There are no U.S events on the schedule. On Tuesday, the U.S. releases PPI reports and ECB President Draghi will testify about the ECB Annual Report.
The ongoing global trade war continues to hamper manufacturing sectors across the eurozone. Last week, industrial production in Italy fell by 1.6% in November and in France the drop was 1.3%. The alarming trend continued on Monday, as eurozone industrial production declined 1.6%. Germany, the locomotive of the bloc, is also in trouble, in which industrial production has slipped for three straight months. With the three largest economies in the eurozone showing signs of weakness, conditions may not warrant any rate increases in the foreseeable future. The ECB winded up its stimulus program last month, and had expressed plans to raise rates later this year, but this will require stronger economic conditions in the eurozone.
The euro gained ground late in the week, as the Fed’s dovish turn has reduced enthusiasm for the U.S dollar. The minutes from the Fed’s December meeting, released Wednesday, noted that low inflation levels meant that the Fed could “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. On Thursday, Fed Chair Jerome Powell said he was “very worried” about the massive U.S. debt and reiterated that the Fed would remain patient on monetary policy. Given that further interest rate hikes would hurt the debt burden of corporate borrowers, Powell’s remarks on the debt could be a sign that the Fed will take a pause on rate hikes in the near future, and perhaps even entertain a rate cut this year. The sharp U-turn on monetary policy by the Fed could continue to weigh on the U.S dollar for the near future.