EUR/USD has steadied on Thursday, after strong gains on Wednesday. Currently, the pair is trading at 1.1404, down 0.08% on the day. On the release front, there are no German or eurozone indicators. In the U.S., the Philly Fed Manufacturing Index is expected to rebound with a gain of 4.6, after a rare decline in January. Unemployment claims are projected to dip to 226 thousand. On Friday, Germany and the eurozone release services and manufacturing PMI reports.
The Federal Reserve has been sending out a steady dose of dovish messages since the start of the year, but the sharply dovish stance at the Wednesday policy meeting was a surprise. The Fed’s rate outlook (dot plot), which is released each quarter, showed that a majority of FOMC members expect no rate hikes in 2019. This was in sharp contrast to the previous quarter’s forecast, in which the FOMC projected two hikes this year.
The rate statement was downright pessimistic, stating that economic activity “has slowed”. Policy makers singled out slower growth in household spending and business investment and noted that inflation has decreased due to lower energy prices. The Fed also announced that it would stop reducing its balance sheet by $50 billion a month. This move is a loosening of policy and is intended to stimulate the economy. The new Fed forecast projects GDP growth of 2.1%, down from 2.3% in December.
European leaders meet in Brussels on Thursday, where Prime Minister May will request an extension for Brexit. The Europeans are exasperated by turmoil surrounding Brexit and the inability of the British government to pass the withdrawal agreement in parliament. Jean-Claude Juncker, the President of the European Commission, said on Wednesday that the E.U. would not provide May with an answer immediately, but would meet for consultations next week. The clock is ticking, with Britain scheduled to leave the E.U. on March 29.
