The euro has posted considerable losses on Tuesday, after a slow start to the week. Currently, the pair is trading at 1.2341, down 0.53% on the day. On the release front, German and eurozone confidence reports for February beat the estimates, but slowed compared to the January releases. German ZEW Economic Sentiment came in at 17.8, beating the estimate of 16.0 points. Eurozone ZEW Economic Sentiment dropped to 29.3, above the estimate of 28.4. German PPI improved to 0.5%, above the estimate of 0.3%. This marked the strongest reading since January 2017. There are no US releases on the schedule. On Wednesday, Germany and the eurozone release manufacturing PMIs. The Federal Reserve will release the minutes of its January meeting. As well, the US will release Existing Home Sales.
Federal Reserve chair Jerome Powell has just started his new job, and there is plenty on his plate. Strong US data in recent weeks has raised speculation that the Fed may need to accelerate the pace of interest rate hikes in 2018. The Fed is currently projecting three rate hikes this year, but if inflation continues to move upwards, many analysts are expecting that the Fed could press the rate trigger four or even five times in 2018. Meanwhile, concern over higher inflation and more rate hikes sent the stock markets into a frenzy. Powell sought to reassure the markets that the Fed was monitoring the situation, but it’s doubtful that the Fed can do much to prevent volatility in the markets.
Should cryptocurrencies be regulated? The recent turbulence in the global stock markets has triggered strong volatility in the currency markets, and ECB President Mario Draghi recently stated that the ECB was concerned about the euro’s sharp fluctuations. Last week, Draghi weighed in on Bitcoin, a cryptocurrency which has seen wild fluctuations in recent months. There are growing calls for regulation of these currencies, and central banks could play a key role in such oversight. However, Draghi poured cold water on any ECB involvement, saying that it was not the ECB’s responsibility to ban or regulate Bitcoin. Draghi added that the ECB was exploring the use of blockchain, a digital technology to monitor bitcoin transactions. France and Germany want to cryptocurrencies on the agenda at the next G-20 meeting, and there is bipartisan support in Congress to adopt new rules to regulate virtual currencies.
