The euro has posted slight gains in the Friday session. Currently, EUR/USD is trading at 1.2270, up 0.26% on the day. In economic news, German PPI ticked higher to 0.2%, matching the forecast. The Eurozone Current Account Surplus widened to EUR improved to 32.5 billion, beating the estimate of EUR 31.3 billion. In the US, today’s key event is UoM Consumer Sentiment, which is expected to rise slightly to 97.0 points.
Investors are keeping a close eye on Capitol Hill, where a Federal government shutdown will take place on Saturday if Congress does not reach agreement on a short-term spending bill. The House of Representatives passed such a bill on Thursday, but the Senate could be a different story. A 60-seat majority is needed for the measure to pass, which means that the Republicans, who have a 51-49 majority, will need substantial support from the Democrats. However, many Democrat lawmakers are incensed over President Trump’s threat to deport young illegal immigrants and his recent inflammatory language against immigrants from poor countries. A government shutdown last occurred in 2013, and resulted in temporary layoffs for 800,000 non-essential Federal workers. With an election year in 2018, lawmakers from both parties will not want to anger voters, so we could see a last minute compromise which prevents a shutdown.
Germany continues to post strong current account and budget surpluses, a result of the booming economy. A strong demand for German products, record low unemployment and the ECB’s expansionary monetary policy have all contributed to the surpluses. What should be done with all these funds? This was a source of disagreement a recent conference in Frankfurt, hosted by the IMF and German Bundesbank. IMF Managing Director Christine Lagarde suggested that Germany should increase public spending. However, Bundesbank President Jens Weidmann acknowledged that the surpluses may be getting too large, but that increasing public expenditures was not the solution. With the German economy far outpacing its eurozone peers, most of them would likely envy Germany’s quandary over what to do with large surpluses.