It’s been a quiet start to the week for the euro. In the Tuesday session, EUR/USD is trading at 1.1774, up 0.04% on the day. In economic news, German ZEW Economic Sentiment slowed to 17.4, short of the estimate of 17.9 points. Eurozone ZEW Economic Sentiment also softened, with a reading of 29.0. This was short of the 30.2 points. Later in the day, ECB President Mario Draghi speaks at an event in Frankfurt. The US will release PPI, an important inflation indicator. On Wednesday, Germany the US release CPI reports. As well, the Federal Reserve is expected to raise rates to a range between 1.25% to 1.50%.
The well-respected ZEW Economic Sentiment indicator, a confidence barometer of institutional investors, slowed in December, in both Germany and the eurozone. Still, the readings point to optimism – Germany’s economy continues to look sharp, and this had led the way for the eurozone, which has enjoyed solid growth in 2017. Still, investors have to keep an eye on political developments as well, and there are some worrisome developments. Germany still remains without a government, and uncertainty over Brexit continues to hover over the European Union. The euro has shrugged off the soft ZEW readings, showing little change in the Tuesday session.
The markets are expecting a quarter-point rate hike from the Fed later on Wednesday. Even though this move has been priced in, rate hikes tend to trigger a surge of confidence among investors, and also makes the US dollar more attractive against its rivals. Traders should therefore be prepared for the US dollar to record gains after the rate announcement. Another rate hike is expected in January, with fed futures pricing a rate hike at 87%. The Fed has hinted that it could raise rates up to three times in 2018, and this upward movement in rates will likely propel the US dollar upwards. The US labor market remains at full capacity and various sectors in the economy are reporting a lack of workers. Still, this has not translated into stronger wage growth, despite predictions from Janet Yellen and other Fed policymakers that a lack of workers is bound to push up wages.
