It’s a quiet start for the euro in the Monday session. Currently, EUR/USD is trading at 1.2306, down 0.10% on the day. On the release front, eurozone numbers disappointed, as services PMI, retail sales and consumer confidence all missed their estimates. In the US, today’s key indicator is Non-Manufacturing PMI, which is expected to dip to 58.9 points. On Sunday, Italians went to the polls, and the euro-skeptic parties did quite well, as the country appears headed to political deadlock.
The euro gained 1.0% late last week, 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, both 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.
The Federal Reserve has been in the spotlight in recent weeks, but market attention shifts to the ECB this week, as policymakers meet on Thursday. No major changes are expected, but members could discuss 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. Inflation remains weak, so there is little pressure on the ECB to tighten policy anytime soon. Recent indicators show that inflation in the eurozone is steady, but remains well below the ECB target of around 2 percent. Eurozone CPI dipped to 1.2% in February, down from 1.3% in January.
