It continues to be a quiet week for the euro. Currently, EUR/USD is trading at 1.2439, up 0.05% on the day. On the release front, there are no eurozone or German indicators on the schedule. The US will release CPI and Core CPI, both of which are expected to slow to 0.2%. On Wednesday, ECB President Mario Draghi will speak at an ECB conference in Frankfurt and Germany releases Final CPI. The US will release key inflation and consumer spending reports.
US employment numbers were a mix on Friday. Wage growth dropped to 0.1% in February, down from 0.3% a month earlier. This missed the estimate of 0.2%, and marked the lowest gain in four months. The news was much better from nonfarm payrolls, which soared to 313 thousand, crushing the estimate of 205 thousand. The mixed readings have eased concerns about the Fed raising rates four times in 2018.
Is the German industrial sector in trouble? Last week’s numbers were surprisingly soft. Factory Orders in January plunged 3.9%, worse than the estimate of -1.9%. This marked the second decline in the past three months. This was followed Industrial Production, marking a second straight decline. Still, the German economy has performed well, and has led the impressive recovery in the eurozone.
Are Britain and the European Union heading towards a showdown? Last week, Donald Tusk, president of the European Council, advised Prime Minister May to ‘pink’ her red lines on Brexit, if Britain wants to maintain a close economic relationship with the bloc. May has insisted that there will be no customs union, and the European Court of Justice will have no jurisdiction over the UK. May set out these positions after the EU published its draft negotiating guidelines for Brexit, and the guidelines warned of ‘negative economic consequences” if Britain does not soften its position. Tusk added that he does not want to build a wall with Britain, and the EU could offer Britain a free trade agreement, with zero tariffs. At the same time, Tusk warned that Brexit will make trade between the two sides ‘complicated and costly” and the EU would not allow Britain to cherry pick in any future trade arrangement. EU members are expected to sign off on the negotiating guidelines at a summit in late March, which could trigger a nasty response from the May government.
