EUR/USD continues to drift, as the pair is unchanged this week. Currently, the pair is trading at 1.1189, down 0.03% on the day. On the release front, there are no German or eurozone events. The U.S. releases PPI and Core PPI, both of which are expected to slow to 0.2%. Unemployment claims are forecast to drop sharply to 215 thousand, after a reading of 230 thousand in the previous release. As well, Federal Reserve Chair Jerome Powell speaks at an event in Washington. On Friday, Germany releases trade balance and the U.S. posts consumer inflation reports.
On Tuesday, the European Commission 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.
At last week’s Federal Reserve policy meeting, the Federal Reserve maintained its key interest rate and indicated that it was comfortable with current monetary policy and had no plans to raise or lower rates in the coming months. However, the U.S. economy has exceeded expectations, with a sparkling GDP of 3.2% in Q1, and a sharp nonfarm payrolls of 263 thousand. Will these sharp numbers make a rate hike more likely? The markets don’t think so. According to the CME Group, there is zero probability that the Fed will raise rates before 2020. Moreover there is a 60% likelihood that the Fed will cut rates before the end of 2019. This sentiment could weigh on the greenback, as rate hikes make the currency more attractive to investors.
