EUR/USD ended the week with losses, and the downward trend continues in the Monday session. Currently, the pair is trading at 1.2249, down 0.31% on the day. On the release front, German and eurozone manufacturing PMIs dropped in March, but still pointed to expansion. In the US, Existing Homes is expected to inch up to 5.55 million. On Tuesday, Germany releases Ifo Business Climate and the US publishes CB Consumer Confidence.
The closely-watched manufacturing PMIs lost ground in March. German Manufacturing PMI dropped from 58.4 to 58.1, but beat the estimate of 57.6 points. Eurozone Manufacturing PMI dropped from 56.6 to 56.1, short of the forecast of 56.6 points. The readings remain well above the 50-point level, which separates expansion and contraction. At the same time, there is some concern as manufacturing activity (and general growth) in the eurozone was stronger earlier the year. If second-quarter numbers soften compared to Q1, the euro could respond with losses.
ECB policymakers will have to make some critical decisions later this year, as the bank’s stimulus program is scheduled to wind up in September. A key factor in future monetary policy moves will be inflation levels, which continue to remain well short of the ECB’s target of around 2 percent. Eurozone inflation moved higher in March. Final CPI came in at 1.3%, up from 1.1% a month earlier. Still, the reading fell short of the estimate of 1.4%. As long as inflation remains low, there will be little pressure on the ECB to alter policy. If the economy heats up and inflation moves closer to target, interest rate hikes will have to be considered but remain very unlikely before 2019.
