The euro has ticked higher in the Friday session. Currently, EUR/USD is trading at 1.1853, down 0.17% since Thursday’s close. On the release front, German GfK Consumer Climate inched up to 10.8, above the estimate of 10.7 points. French Consumer Spending soared 2.2%, well above the forecast of 1.4%. It’s a busy day in the US, with a host of key events. Durable goods reports are expected to improve, but the markets are braced for softer readings from New Home Sales and UoM Consumer Sentiment.
Catalans flocked to the polls in a highly-anticipated election, but the results have shown that little has changed since the region declared independence in October. Although a nationalist party scooped up the most seats, the three pro-independence parties have won 70 seats out of 135, good enough for a slim majority. The vote is a stinging rebuke of Spanish Prime Minister Mariano Rajoy, who has imposed direct rule on the region and was hoping that the election would hurt the independence movement. Spain endured a deep political crisis when Catalonia declared independence, and it appears that more political uncertainty and instability lie ahead for the fourth largest economy in the eurozone.
It has been a great week for President Trump. Republicans lawmakers presented him with an early Christmas present, as both branches of Congress passed Trump’s landmark tax reform bill. One of Trump’s key campaign pledges was tax reform, and the new legislation marks the first overhaul of the tax code since the Reagan administration. There was more good news, as US Final GDP posted a strong gain of 3.2%, just shy of the Preliminary GDP reading of 3.3%. With the US economy posting growth above 3% for another quarter, the Federal Reserve remains on track for another rate hike in January. The CME Group has pegged the odds of a January hike at 98%, and if the economy continues its current pace, the Fed could raise rates up to four times in 2018. Inflation remains a sore point, as the Fed target of 2.0% remains well out of reach. Fed Chair Janet Yellen and other FOMC members have said they expect that the strong labor market will lead to higher inflation, but the Fed has demonstrated that it is willing to press ahead with rate hikes despite low inflation.
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