The euro is showing little movement in the Wednesday session. Currently, EUR/USD is trading at 1.1857, up 0.14% on the day. On the release front, German PPI slowed to 0.1%, shy of the estimate of 0.2%. As well, the Eurozone Current Account Surplus dropped sharply to EUR 30.8 billion, well short of the estimate of EUR 33.4 billion. In the US, today’s key event is Existing Home Sales. Thursday is a busy day in the US, with the release of third quarter Final GDP. We’ll also get a look at the Philly Fed Manufacturing Index and unemployment claims.
President Trump can claim victory – almost. Trump’s tax reform bill was passed in the House of Representatives and the Senate on Tuesday, but the bill is being sent back to the House for another vote due to a procedural requirement. The bill is expected to be ratified by the House and will then be sent to Trump to be signed into law. As expected, the congressional votes went along party lines, with the Senate narrowly approving the bill by a count of 51-48. This marks the first major overhaul of the US tax code in 30 years, and reduces corporate taxes from 35% to 21%. After failing to overturn Obamacare, the Republicans can finally chalk up their first legislative victory in the Trump administration, ahead of Congressional elections in 2018.
The US economy continues to fire on all cylinders, and should do well on Thursday’s report card, with the release of Final GDP for Q3. Preliminary GDP posted an impressive 3.3% gain, and the markets expect Final GDP to be revised downwards to 3.1%, which still indicates strong economic expansion. The Federal Reserve wrapped up 2018 with a quarter-point hike, and another increase is widely expected at the January meeting. Strong economic numbers and this accelerated pace of rate increases bodes well for the US dollar against the euro and other major rivals.
In Germany, coalition talks continue to grind slowly, as President Angela Merkel tries to form a new government. Merkel’s conservative bloc suffered losses in the September election, and talks with smaller parties failed to break the political deadlock. Merkel has now shifted her efforts towards her previous junior coalition party, the Social Democrats (SDP). On Friday, the SDP voted to begin exploratory talks with Merkel, with a view to discussing substantive issues in January. Many SDP lawmakers want a more senior role for the SDP in any coalition, and the SDP will likely demand key portfolios in a new government. Despite the political uncertainty, the German economy continues to look very strong.
