The euro has posted losses in the Wednesday session. Currently, EUR/USD is trading at 1.2234, down 0.18% on the day. In economic news, Eurozone Final CPI ticked lower to 1.4%, matching expectations. In the US, there are no key events on the schedule. On Thursday, Bundesbank President Jens Weidmann will speak at an event hosted by the Bundesbank and the IMF. It’s a busy day in the US, with the release of construction, manufacturing and employment reports.
The euro continues to enjoy a sunny January. The continental currency has gained 2.4% this month, and this week, the EUR/USD touched highs not seen since December 2014. Investors flocked to the euro following the ECB minutes, which has raised speculation that the ECB could wind up its asset purchase program (QE) in September 2018. As well, substantial progress in German coalition talks has also boosted sentiment towards the euro. Talk of the ECB reducing stimulus in September, and perhaps raising interest rates afterwards have boosted the euro. However, on Tuesday, Bundesbank President Jens Weidmann said in a newspaper interview that he did not expect interest rates to rise until mid-2019, even if QE ends in late 2018. If Weidmann reiterates this stance on Thursday, investors may take note and the euro could backtrack on some of its recent gains.
Investors are keeping an eye on the Federal Reserve, which holds its next policy meeting on January 31. A rate hike is a virtual certainty, with CME Fed Watch pegging the odds of a quarter-point hike at 98.5%. Although this means that a rate hike has been priced in by the markets, the dollar could nevertheless gain ground after a hike, as a rate increase would signify an important vote of confidence in the economy by the Fed Reserve. If the US economy continues to expand at a c clip of around 3 percent, there is a strong likelihood of another rate hike in the first half of 2018.
