EUR/USD has posted gains in the Friday session. Currently, the pair is trading at 1.2329, up 0.20% on the day. On the release front, German Wholesale Price Index declined 0.3%, missing the estimate of +0.2%. Eurozone Final CPI also disappointing, as the reading of 1.1% was shy of the forecast of 1.3%. In the US, key indicators are expected to slow, which could weigh on the US dollar during the North American session. Building Permits and Housing Starts are forecast to drop to 1.32 million and 1.29 million respectively. The markets are also bracing for a drop in UoM Consumer Sentiment, which is expected to slow to 99.2 points.
The eurozone economy has been on the rebound, but inflation levels still remain well short of the ECB target of just under 2 percent. In fact, Eurozone Final CPI has been dropping in recent months, and this worrisome trend continued in February, when the indicator dropped to 1.1%, down from 1.3% a month earlier. This marked the weakest gain since December 2016. On Wednesday, inflation was on the mind of ECB President Mario Draghi, who expressed caution about inflation. Draghi said that the ECB still needed to see evidence that inflation was gaining strength before there could be any talk about a change in monetary policy. In the meantime, the ECB would remain “patient, persistent and prudent”. Stronger economic conditions have led to growing speculation that the ECB will wind up its stimulus program in September. However, there is still plenty of slack in the economy, and coupled with low inflation, Draghi can afford to remain cautious and maintain current monetary policy for some time.
German Chancellor Angela Merkel was elected to a fourth term on Wednesday, but this time she stumbled over the finish line, as opposed to previous wins, when she cruised to victory. Merkel’s stature has diminished after a poor showing in the election back in September, and she will preside over a fractured coalition. Merkel was forced to give the socialist SDP the finance and foreign ministry portfolios, so we can expect the new government to be more supportive of eurozone integration, including assistance for weaker eurozone members.
