The euro continues to have a quiet week, as it stays close to the 1.16 line. In the Friday session, EUR/USD is trading at 1.1654, up 0.11% on the day. In economic news, it’s a quiet end to the week, with no German or Eurozone events. The US releases Preliminary UoM Consumer Sentiment, which is expected to edge lower to 100.8 points.
The ECB tapered its stimulus program in October, after months of staying on the sidelines. A stronger eurozone economy, led by Germany, enabled the cautious central bank to cut monthly asset purchases from EUR 60 billion to 30 billion, starting next year. However, the Bank also extended the program until September 2018, due to concerns about inflation, which remain well below the ECB target of 2 percent. Some ECB policymakers have expressed reservations about the gradual pace of trimming stimulus, arguing that the Bank should cut the asset purchases at a faster rate. Governing Council member Philip Lane, head of the Irish central bank, said on Thursday that if inflation moves closer to 2 percent, the ECB should tighten at a fast pace. The heads of the German and Austrian central banks, who are also on the Governing Council, went even further, saying that the ECB should have indicated a clear intent to end asset purchases, rather than announce an extension. If eurozone indicators continue to point upwards, ECB President Mario Draghi will be under more pressure to tighten policy.
German coalition talks are gaining steam, as President Angela Merkel has convinced potential partners to drop key demands. Merkel’s conservative bloc saw its support erode in the election, and needs the support of two smaller parties – the Greens and the liberal FDU. After intense negotiations, the Greens have dropped a demand on the phase-out of fossil fuels. The FDU wanted to lower taxes by 30-40 billion euros, but has agreed to more moderate tax cuts. Merkel has been under pressure from her own bloc to tighten immigration policy, but the Greens are opposed to such a move. If the talks continue to progress, Merkel could have a government in place in December.
