The euro has edged higher in the Wednesday session. Currently, EUR/USD is trading at 1.2452, up 0.17% on the day. On the release front, Eurozone Revised GDP posted a gain of 0.6% for a fourth straight quarter. This matched the estimate. In the US, today’s key indicator is ADP nonfarm payrolls, which is expected to drop sharply to 199 thousand. On Thursday, the ECB sets its benchmark rate, and the US will publish unemployment claims.
Investors are keeping a close eye on the ECB, which will set the benchmark rate on Thursday. This will be followed by a press conference with Mario Draghi. The interest rate has been pegged at a flat 0.0% for the past two years, and no change is expected. The markets will be keeping a close eye on the language of the rate statement; in particular, whether the easing bias stance will be removed. If so, this would likely be interpreted as a plan to eventually 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.
In the US, tensions over proposed tariffs on steel imports continue to hurt the US dollar, and the euro has gained closed to 1% in the past week. President Trump appears set on applying stiff tariffs of 25% on steel, much to the consternation of the European Union and other US trading partners. However, there is plenty of domestic opposition to Trump’s plan, as Republican lawmakers, including House Speaker Paul Ryan, have come out strongly against the move. If Trump doesn’t back down, the Republicans could even resort to legislation to limit Trump’s authority on tariffs. The announcement of the tariffs last week sent the dollar broadly lower, and if the tariffs are introduced, negative investor sentiment could continue to weigh on the dollar.
