EUR/USD is slightly higher in Friday trade. Currently, the pair is trading at 1.1212, up 0.12% on the day. On the release front, Germany’s trade surplus widened to EUR 20.0 billion in March up from EUR 18.7 billion a month earlier. This is the first time that the trade surplus has exceeded the EUR 20-billion level since May. In the U.S., the focus remains on inflation indicators, with the release of consumer inflation reports. CPI is expected to remain steady at 0.4%, while the core reading is projected to rise from 0.1% to 0.2%.
The trade war saga continues, with an ominous development on Friday. U.S. President Donald Trump made good on his threat to raise tariffs on some $200 billion worth of Chinese goods, from 10% to 25%. Trump had announced the measure on Friday, and global equity markets have been in flux the entire week, as risk appetite has waned. There had been hopes that the unpredictable U.S. president would change his mind ahead of the midnight Thursday deadline, but those hopes were dashed. China has promised retaliatory measures against the U.S. move. Despite these tensions, a high-level Chinese delegation is in Washington to continue the trade talks, and it is certainly in the interest of both sides to try and reach an agreement.
What can we expect from the Federal Reserve, which has kept a low profile? At last week’s policy meeting, the Fed 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.
