The euro has edged downwards on Wednesday. Currently, the pair is trading at 1.2228, down 0.29% on the day. On the release front, Germany’s trade surplus narrowed to EUR 21.4 billion, just shy of the estimate of EUR 21.5 billion. In the US, the key event is unemployment claims, which is expected to edge up 232 thousand. On Friday, France releases Industrial Production.
The euro has been under pressure for most of the week, and is down 1.8 percent against the dollar. The greenback has benefited from sharp volatility in global stock markets this week. The week started with the Dow Jones posting its biggest one-day loss, and the markets have been choppy throughout the week. US markets were in the red on Wednesday, and this has weighed on European stock markets and the euro in the Thursday session. Investors are concerned that inflation could rise in the US, which in turn would trigger additional rate hikes from the Fed. This would make the US dollar more attractive against the euro and other currencies.
After months of political uncertainty, Germany appears on the verge of forming a new government. On Wednesday, the socialist SDP and Angela Merkel’s conservatives announced that they had finalized a coalition agreement. In the last government, the SDP was the junior partner of the conservatives, but this time around the SDP has extracted major concessions from Merkel, notably control of the powerful finance ministry. This will likely mark a shift in Germany’s eurozone policy, which had been marked by a conservative stance under former finance minister Wolfgang Schaeuble. The weaker members of the eurozone, such as Greece, will likely find a more sympathetic ear for financial help from the SDP than they did from Schauble. The coalition agreement still requires the consent of a majority of the 464,000 members of the SDP, but is expected to pass this final hurdle.