The euro continues to push higher this week. In the Wednesday session, EUR/USD is trading at 1.2334, up 0.34% on the day. The euro is currently at its highest level since December 2014. In Germany, Flash Manufacturing PMI slowed to 61.2, shy of the estimate of 63.2 points. There was better news from Flash Services PMI, which accelerated to 57.0. above the forecast of 55.6 points. The trend was similar in the eurozone, as Flash Manufacturing PMI dipped to 59.6, missing the estimate of 60.4 points. Flash Services PMI improved to 57.6, missing the forecast of 56.5 points. In the US, today’s key event is Existing Home Sales, which is expected to dip to 5.72 million. On Thursday, Germany releases Ifo Business Climate, and the ECB will issue a monetary policy statement. The US will release unemployment claims.
What can we expect from the first ECB policy meeting on Thursday? We’re unlikely to see any dramatics at the first policy meeting of 2018, as the ECB is likely to retain its pledge to continue buying bonds under its asset-purchase program (QE). The ECB has trimmed QE from EUR 60 billion to 3o billion/mth, but is likely to maintain interest rates for 3-6 months after that. Still, ECB policymakers have hinted that the Bank could wind up QE in September, and this has pushed the euro higher in recent weeks. ECB President Mario Draghi will speak after the statement, and if he hints that QE will not be extended, the euro could gain ground. However, Draghi may prefer to keep a low profile until March, when policymakers will have had a chance to review updated economic forecasts.
The US government shutdown turned out to be little more than a nuisance, as the shutdown affected only one working day. On Monday, the Senate voted 266-150 to extend government funding until February 8. This stopgap measure will enable the government to provide services during that time, but the lawmakers will need to hammer out a longer-term agreement, as these short extensions are just band aid solutions. The Democrats held up a funding bill last week, in order to force the Republicans to the table over illegal immigration. The Republicans have promised to hold a vote on this issue, but many Democratic lawmakers remain skeptical that President Trump and the Republicans will deal in good faith over immigration.
