HomeContributorsFundamental AnalysisEuro Steady As German GDP, Eurozone CPI Match Forecasts

Euro Steady As German GDP, Eurozone CPI Match Forecasts

The euro has ticked lower in the Friday session. Currently the pair is trading at 1.2313, down 0.14% on the day. On the release front, German Final GDP dipped to 0.6% for the fourth quarter, matching the estimate. The markets also correctly predicted eurozone inflation reports, as Final CPI and Final Core CPI came in at 1.3% and 1.0%, respectively. In the US, there are no data releases, but we’ll hear from three FOMC members – William Dudley, Loretta Mester and John Williams. Traders should be prepared for possible movement if any of these policymakers weigh in on the Fed’s future monetary policy.

The Federal Reserve did not raise rates in January, but the minutes of that policy meeting were highly anticipated, with investors looking for clues regarding upcoming rate hikes. Although the policymakers did not discuss a quicker pace of rate hikes, the minutes hinted that further rate hikes could be in the cards, due to strong economic conditions in the US. In the words of the minutes, policymakers “anticipated that the rate of economic growth in 2018 would exceed their estimates of its sustainable longer-run pace and that labor market conditions would strengthen further”. At the December meeting, the Fed penciled in three rate hikes in 2018, but there is growing sentiment in the markets that the Fed may have to raise rates four or even five times this year. As for inflation, the minutes did not reveal any concern, with most Fed members were of the opinion that inflation would rise towards the Fed target of 2 percent. Global investors, however, seem much more concerned about US inflation levels, as worries that higher inflation would trigger more interest rate hike precipitated the recent stock market correction, which wiped off some $4 trillion in valuations.

This week’s German and eurozone indicators have pointed downwards, and the euro has responded with losses of close to 1% this week. The well-respected ZEW economic sentiment reports dropped in February in Germany and the eurozone, although both indicators managed to beat their estimates. Eurozone consumer confidence remains weak, and the indicator dipped to zero, shy of the forecast of 1 point. On the manufacturing front, eurozone and German PMIs both fell in February and missed the forecasts. At the same time, both releases pointed to strong expansion, a reflection of strong global demand for European products, which has boosted the eurozone manufacturing and export sectors.

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