The euro has posted slight gains in the Tuesday session, offsetting the losses we saw on Monday. Currently, EUR/USD is trading at 1.2411, up 0.23% on the day. On the release front, Eurozone Preliminary Flash GDP for the fourth quarter remained unchanged at 0.6%, matching the forecast. Later in the day, the eurozone releases Preliminary CPI for Q4, with the markets braced for a decline of 0.5%. In the US, Consumer Confidence is expected to rise to 123.2 points. As well, President Trump will deliver his State of the Union address before Congress. Wednesday will be busy. Germany releases retail sales and the eurozone will publish CPI Flash Estimate. There are a host of key indicators in the US, led by ADP Nonfarm Employment Change. The Federal Reserve will release a monetary policy statement, with the markets expecting the benchmark rate to remain unchanged at a range between 1.25%-1.50%.
The euro posted strong gains last week, after US Treasury Secretary Robert Mnuchin said that the US had no problem with a weak dollar. ECB policymakers were not pleased with Mnuchin’s statement, and Mario Draghi, without naming Mnuchin, said that such comments amounted to “targeting the exchange rate”. Mnuchin has since backtracked, saying that his words were taken out of context and that the US has a long-term interest in a strong dollar. President Trump added that Mnuchin was misinterpreted, but these attempts at damage control haven’t had much effect, as EUR/USD has traded sideways since the Mnuchin comments.
The markets have become accustomed to GDP releases above 3.0% in the US, 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.
