The euro has posted slight losses in the Monday session. Currently, EUR/USD is trading at 1.2419, down 0.09% on the day. On the release front, German Import Prices slowed to 0.3%, matching the forecast. In the US, today’s key event is Personal Spending, which is expected to edge lower to 0.5%. Tuesday will be busier, with key events on both sides of the pond. Germany releases Primary CPI and the eurozone publishes Preliminary Flash GDP for fourth quarter 2016. In the US, the key event is CB Consumer Confidence, and President Trump will deliver the State of the Union address.
The markets have become accustomed to GDP releases above 3.0%, so Advance GDP for Q4 was disappointing. The reading of 2.6% fell short of the estimate of 3.0%. The economy grew 2.3% in 2017, compared to 1.6% in 2016. Growth in Q4 was affected by stronger consumer spending, which led to a surge in imports. At the same time, the increase in consumer spending also boosted inflation, as the personal consumption expenditures index, which the Fed prefers to use, rose 1.9% in the fourth quarter, up from 1.3% in Q3. Meanwhile, the US manufacturing sector is booming, as durable goods orders in December hit 2.9%, crushing the estimate of 0.6%. This was the highest gain in six months, and helped make 2017 a banner year. Durable good orders increased 5.8% in 2017, the sharpest expansion since 2011.
The euro posted sharp gains on Thursday after comments from ECB President Mario Draghi, but the gains didn’t last, as EUR/USD continues to show limited movement. Draghi was more dovish than expected, saying that the ECB was prepared to increase QE in “size or duration”, a reminder to the markets that it is premature to expect normalization anytime soon. He added that interest rates would not rise until well after the ECB’s asset-purchase program (QE) was over. The QE program will not end until September at the earliest, so Draghi essentially ruled out any rate hikes before early 2019. A new headache for ECB policymakers is the streaking euro, which has hit 3-year highs against the US dollar. Investors are worried that a stronger euro could hurt exports and company earnings. EUR/USD has jumped 3.3% in January, as the dollar continues to struggle.
