HomeContributorsFundamental AnalysisEuro Dips As German Retail Slumps

Euro Dips As German Retail Slumps

The euro has posted small losses in the Thursday session. Currently, EUR/USD is trading at 1.1819, down 0.25% on the day. On the release front, German Retail Sales declined 1.2%, well off the estimate of 0.3%. German unemployment change declined by 18 thousand, better than the estimate of a drop of 10 thousand. Eurozone CPI Flash Estimate edged up to 1.5%, but this was shy of the forecast of 1.6%. In the US, there are two key events – Personal Spending is expected to dip to 0.2%, and unemployment claims is forecast to edge up to 241 thousand. On Friday, manufacturing indicators will be in focus, as Germany, the eurozone and the US release manufacturing PMI reports.

German retail sales remain problematic, and posted a sharp decline of 1.2% in October. This marked the third decline in four months. Germany’s economy is solid and the labor market is strong, so why isn’t the German consumer spending? Strong economic conditions have not translated into higher wages for a large segment of the labor force, and low unemployment numbers have masked the problem of underemployment, ,which of course means lower wages for workers who can’t find full-time work. The lack of inflation in Germany is apparent in the eurozone as well, as inflation levels remain below the ECB’s inflation target of around 2 percent.

There was more good news for the US economy on Wednesday. Preliminary GDP for the third quarter posted a sharp 3.3%, as expected. This was higher than the initial estimate of 3.0% and marked the fastest growth rate since Q3 of 2014. This was particularly impressive, as the southern US was battered by major hurricanes. Although consumer consumption was softened in the third quarter, business spending improved. The rosy picture of the US economy was summarized by Fed Chair Yellen on Wednesday, who said that the expansion was broad-based, across sectors of the economy.

Jerome Powell, who takes over as Fed chair in February, testified before the Senate Banking Committee on Tuesday. Powell said that he favored tailoring regulations for small banks, leaving the toughest regulations for the big players. Powell was cautious and diplomatic during the hearing, saying that the case is building for a December rate hike, and refused to express an opinion on the Trump tax bill. Powell will replace Janet Yellen, and is widely expected to continue Yellen’s monetary stance of small, gradual rate hikes. Fed policymakers have differing views on what to do about inflation, which remains at low levels. Some members have proposed that the Fed drop its 2 percent target, in favor of a “gradually rising path” for prices. The Fed remains confounded by low inflation and wage growth, despite a labor market that is at full capacity. Still, the Fed will likely pull the rate trigger next month, and could raise rates up to 3 more times in 2018 if the economy continues to expand at its current pace.

MarketPulse
MarketPulsehttps://www.marketpulse.com/
MarketPulse is a forex, commodities, and global indices research, analysis, and news site providing timely and accurate information on major economic trends, technical analysis, and worldwide events that impact different asset classes and investors. This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities.

Featured Analysis

Learn Forex Trading