It has been an uneventful week for EUR/USD. Currently, the pair is trading at 1.1201, up 0.08%. On the release front, German industrial production came in at 0.5%, much stronger than the estimate of -0.5%. Later in the day, the ECB releases the minutes of its April policy meeting. For a third straight day, there are no major events in the U.S. On Thursday, the U.S. releases producer price index reports and unemployment claims.
The European Commission has lowered its 2019 growth forecasts for Germany and the eurozone, compared to the forecast back in February. The eurozone downgrade was minor, from 1.5% to 1.4%. However, the forecast for Germany was slashed from 1.1% to 0.5%. The EU noted that the downside risks to the eurozone remain “prominent”, and noted that deadlines for the U.S-China trade talks and Brexit had come and passed, leaving significant uncertainty about the economic outlook. The report warned that “an escalation of trade tensions could prove to be a major shock.” The weak German forecast and pessimistic tone of the report could dampen investor appetite for the euro, although the currency has held steady on Tuesday.
With the eurozone continuing to post lukewarm data, the ECB is in no rush to alter its monetary policy. Rate-setters are in a dovish mood, and the bank recently stated that it had no plans to raise rates prior to the spring of March 2020. The U.S. economy is in much better shape, but the Federal Reserve has shifted to dovish stance so far this year. At last week’s rate meeting, Fed chair Powell said that rate moves could go either way. Economic data will play a major factor in what direction rates move. Recent numbers have looked strong – GDP for Q1 jumped 3.2%, and nonfarm payrolls was unexpectedly strong in April. If this positive trend continues, the Fed could raise rates later this year, and the divergence with the ECB would likely boost the dollar, at the euro’s expense.
