The euro is unchanged in the Friday session, after posting gains on Thursday. Currently, EUR/USD is trading at 1.2276, up 0.07% on the day. On the release front, German retail sales dropped 0.7%, well off the estimate of a 0.8% gain. This marked a third decline in four months. Later in the day, we’ll get a look at Eurozone PPI, which is expected to improve to 0.4%. In the US, the UoM Consumer Sentiment report is expected to jump to 99.4 points.
The euro posted considerable gains in the Asian session, after US President Trump announced that he would be imposing stiff tariffs on steel and aluminum, in order to protect domestic producers. Under the new scheme, foreign steel will be taxed at 25% and aluminum at 10%. The response to the move was overwhelmingly negative, but abroad and in the US. China and the EU immediately denounced the move US auto makers and oil and gas producers also condemned the tariffs, saying they could get caught in the middle of a nasty trade war if other countries retaliate. In imposing the tariffs, Trump relied on a provision which allows such measures for national security, but clearly, US trading partners will not quietly accept these protectionist measures.
Recent indicators show that inflation in the eurozone is steady, but remains well below the ECB target of around 2 percent. Eurozone CP dipped to 1.2% in February, down from 1.3% in January. Economic growth has rebounded, led by a robust German economy. Still, there is plenty of slack in the eurozone economy and the ECB is not under pressure to tighten policy. The Bank will meet on March 8, and no major changes are expected. Policymakers could deliberate the possibility of removing the Bank’s easing bias towards increasing bond purchases if needed. A removal of the easing bias would likely be interpreted as a plan to tighten policy and would be bullish for the euro.
