The euro has started the week with gains. In the Monday session, EUR/USD is trading at 1.2342, up 0.38% on the day. There are on data releases in the eurozone. Later in the day, ECB President Mario Draghi testifies before the European Parliament Economic and Monetary Affairs Committee. In the US, New Home Sales is expected to jump to 655 thousand. On Tuesday, Germany releases Preliminary CPI. The US will release durable goods and consumer confidence reports. As well, Federal Chair Jerome Powell will testify before the House Financial Services Committee.
On Thursday, the ECB released the minutes of its January meeting. The markets were looking for some hints regarding future monetary policy, and policymakers indicated that they could take re-examine the Bank’s monetary policy “early this year”. The ECB is keeping a close eye on inflation, which has been moving upwards. Still, with inflation below the ECB target of just below 2%, there is little talk about raising interest rates. Policymakers also indicated concern with exchange rates, a theme which has been addressed by Mario Draghi in recent weeks, given the appreciation of the euro – EUR/USD has climbed 2.8% since the start of the year. The minutes voiced “concerns about the recent volatility in the euro exchange rate, which represented a source of uncertainty that had to be monitored with respect to its implications for the medium-term outlook for price stability”. The euro has seen plenty of volatility in February, and currency volatility will likely be high on the agenda of the next policy meeting in March.
Jerome Powell will be on center stage this week, when he testifies before the House of Representatives and the Senate this week. After the recent stock markets volatility, Powell may opt to play it safe and keep away from any splashy headlines, which could lead to more fluctuation in the markets. Powell could choose to focus on the strong US economy and the Fed trimming its balance sheet, and steer away from a discussion of accelerating rate policy in order to head off higher inflation.
