EUR/USD hasn’t missed a beat as we start 2018, posting gains in the Tuesday session. Currently, EUR/USD is trading at 1.2067, up 0.55% on the day. The pair is at its highest level since early September. On the release front, German and Eurozone Manufacturing PMIs improved in December. German Manufacturing PMI came in at 63.3, while Eurozone Manufacturing PMI climbed to 60.6 points. Both indicators matched their estimates. On Tuesday, Germany releases Unemployment Change. In the US, the FOMC will publish the minutes of its December meeting, and we’ll get a look at ISM Manufacturing PMI.
German inflation ended the year on a strong note, as Preliminary CPI accelerated to 0.6% in December. This edged above the forecast of 0.5%. The sharp gain matched the February reading, equaling the strongest gain recorded in 2017. Earlier this month, in a nod to stronger economic activity in 2017, the ECB raised its forecasts for growth and inflation for the eurozone from this year through to 2019. Still, inflation remains well below the ECB target of around 2.0%, and ECB policymakers are unlikely to announce an end to their stimulus package until inflation moves closer to the 2.0% target.
Investors will be monitoring the Federal Reserve on Tuesday, with the release of the minutes of the December meeting. At that meeting, the Fed raised rates by 25 basis points, to a range between 1.25-1.50%. The hike marks a vote of confidence in the US economy, and if the minutes are hawkish, the US dollar could gain ground and stem the euro rally. If the US economy continues to expand at a clip exceeding 3%, the Fed is expected to raise rates up to four times in 2018. Currently, the CME Group has priced in a January rate hike at 98.5%. Although inflation remains well below the Fed target of 2.0%, outgoing Fed Chair Janet Yellen and other FOMC members have said that they expect that the strong labor market will lead to higher inflation. Although this is yet to materialize, of significance to the markets is the commitment of the Fed to press ahead with rate hikes, despite low inflation.
