The euro has posted gains on Tuesday, after starting the week with losses. Currently, the pair is trading at 1.2407, up 0.32% on the day. On the release front, German Factory Orders impressed with a gain of 3.8%, crushing the estimate of 0.6%. In the US, the key event of the day is JOLTS Job Openings, which is expected to climb to 5.95 million. On Wednesday, Germany releases Industrial Production.
The dollar kicked off the week with gains, after global stock markets posted sharp losses on Monday. The Dow Jones posted its biggest loss in one day, losing 1,500 points at one stage. The index ended the day down 4.6%. What happened? Some analysts are pointing to the changing of the guard at the Federal Reserve, although the new chair is not expected to veer off current monetary policy. More likely, strong US nonfarm payrolls and wage growth reports could lead to higher inflation, which in turn would result in more rate hikes this year. Higher interest rates make the dollar more attractive for investors, at the expense of the stock markets. As well, there are expectations that the ECB and possibly the Bank of Japan could raise rates late in 2018, which would push up the euro and yen and weigh on the stock markets.
In the US, January employment numbers were sharp, propelling the dollar to broad gains on Friday, as EUR/USD lost ground. Nonfarm payrolls, which is usually a market-mover, jumped to 200 thousand, beating the estimate of 181 thousand. Wage growth remained steady at 0.3%, edging above the estimate of 0.2%. The unemployment rate held steady at 4.1% for a fourth straight month. Will the strong numbers lead to additional interest rate hikes? Minneapolis Fed President Neel Kaskkari said on Friday that the Fed might need to be more aggressive if wages continued to move higher. The Fed is planning to raise rates three times in 2018, but some economists are forecasting four hikes. Either way, the Fed is expected to continue its monetary policy of incremental rates of 25 basis points, with the goal of not surprising the markets and preventing the robust US economy from overheating.
