EUR/USD – Euro Slightly Higher

EUR/USD has recorded slight gains in the Friday session. Currently, the pair is trading at 1.2327, up 0.21% on the day. German banks are closed for a holiday. US and major European markets are closed for the Easter holiday, so traders can expect a quiet day from the pair.

German inflation increased in March by 0.4%, just shy of the estimate of 0.5%. On an annual basis, German inflation stands at 1.5%, shy of the ECB target of around 2%, but high enough to warrant discussions about a change in the ECB’s monetary policy. Eurozone inflation stands at 1.1%, so the bank won’t be changing policy anytime soon. Still, German policymakers want to see a tighter policy, given the robust German economy. Earlier this week, the head of the German central bank, Jens Weidmann, called for asset purchases to end “soon”. Weidmann also raised the possibility of interest rate hikes, saying that a rate increase in mid-2019 was “probably not entirely unrealistic.” Weidmann received support from the head of the Dutch central bank, Klaas Knot, who said that the ECB should not continue asset-purchases after September, as “the top priority is to normalize monetary policy”. If the eurozone economy performs well and inflation moves higher, the voices calling for an end to the ECB’s stimulus program will get louder.

A strong GDP report out of the US on Wednesday pushed EUR/USD sharply lower. US revised GDP for the third quarter came in at 2.9%, beating the estimate of 2.7%. This reading was revised upwards from the initial GDP estimate of 2.5%. Fourth quarter growth, although solid, could not keep up with a superb third quarter, which posted a gain of 3.2%. As for 2018, first quarter growth is expected to soften to 1.8%, but there is still a strong chance that the economy could hit 3% growth this year, as promised by US President Trump. The catalysts for such a rosy prediction are the massive tax cut and higher government spending. Where does this leave the Federal Reserve, which raised interest rates last week? Currently, the Fed is projecting to more rate hikes this year, but if the economy remains strong and inflation levels move closer to the Fed target of 2%, we could see four rate increases in 2018.

Source: fxstreet.com