The euro has posted slight gains in the Wednesday session, in what continues to be an uneventful week f0r EUR/USD. Currently, the pair is trading at 1.2451, up 0.39% on the day. On the release front, German Retail Sales plunged 1.9%, much weaker than the estimate of -0.3%. This marked the strongest decline since June 2015. On the inflation front, Eurozone CPI Flash Estimate, ticked lower to 1.3%, the lowest level since July 2017. In the US, there are a host of key events. ADP Nonfarm Employment Change is expected to slow to 186 thousand. The Federal Reserve will release a monetary policy statement, with the markets expecting the benchmark rate to remain unchanged at a range between 1.25%-1.50%. On Thursday, German and the eurozone will release Manufacturing PMIs, while the US publishes unemployment claims and the ISM Manufacturing PMI.
Inflation levels in the eurozone pointed upwards in 2017, but softened in January. Eurozone CPI Flash Estimate came in at 1.3%, as inflation remains well below the ECB target of around 2 percent. Lower inflation gives the ECB some breathing room regarding its stimulus program (QE), which is scheduled to terminate in September. A stronger eurozone economy has raised speculation that the ECB could wind up QE and shift to normative policy, and perhaps even raise interest rates. However, ECB policy members have been cautious, trying to keep in check any market enthusiasm about a major change in policy. Last week, ECB President Mario Draghi went as far as saying that QE could be extended or increased if necessary.
All eyes are on the Federal Reserve, which will make a rate announcement on Wednesday, the final one under Janet Yellen’s watch. The tone of the rate statement could affect investor sentiment and have an impact on gold prices. It’s a virtual certainty that the Fed will leaves rates unchanged this time around, although it’s likely that the Fed will raise rates by a quarter-point at the March meeting. Yellen will make way for Jerome Powell, who takes over as chair in early February. Powell is expected to hold the course on monetary policy, which was marked by small, incremental interest rates in order to keep the robust US economy from overheating.
