EUR/USD has started the trading week with small gains. Currently, the pair is trading at 1.1373, up 0.09% on the day. In economic news, German PPI declined by 0.4%, the first decline since February 2018. On Tuesday, Germany releases ZEW Economic Sentiment.
The markets were treated to disappointing news on Monday, with the release of Chinese data. The number 2 economy in the world grew 6.6% in 2018, marking its lowest level since 1990. GDP for the fourth quarter dipped to 6.4%, compared to 6.5% in the previous quarter. The soft GDP release comes on the heels of soft trade and manufacturing data, pointing to a slowdown duw to the ongoing U.S-China trade war. The Trump administration has threatened further tariffs if a deal is not reached by March 1 , but a second round of negotiations between the sides is scheduled for the end of the month in Washington. Chinese officials will be under pressure to show more flexibility in the talks, in order to stem the economic bleeding.
The eurozone economy has softened in recent months, although the economy grew in 2018. The U.S-China trade war has taken a bite out of economic activity, and the eurozone export and manufacturing sectors have slowed. Germany, the largest economy in the bloc, has also been affected and growth for 2019 has been revised downwards. If the trade war continues or the U.S. economy slows down in 2019, the eurozone could lapse into a recession. Bottom line? The ECB, which finally terminated its massive stimulus program last month, is unlikely to raise rates before the fourth quarter of 2019. Just a few months ago, analysts were predicting a rate hike in the third quarter. This means that the euro will have to contend against the dollar without the benefit of higher rates, which would make the euro more attractive to investors.
