EUR/USD Forecast: Winter is not over yet, fasten your seat belts for the Draghi drag and NFP number

EUR/USD Forecast, Euro forecast, US dollar forecast

EUR/USD Forecast, Euro forecast, US dollar forecast

This was the week: Powell’s patience and Brexit hopes

Fed Chair Jerome Powell testified on Capitol Hill and repeated the message of patience regarding raising interest rates. He described the economy as strong in 2018 and solid in 2019, a minor downgrade. Markets liked the tune and chances for a rate hike this year are very low, to say the least.

US GDP beat expectations with 2.6% annualized in the fourth quarter of 2018. Markets were bracing themselves for a worse number, especially after December’s retail sales data badly disappointed. The good news had a lasting positive impact on the greenback

On the other hand, Personal Income and Personal Spending dropped. More importantly, the forward-looking ISM Manufacturing PMI slipped back to 54.2 points, implying a slowdown in early 2019 and casting darker clouds over the economy.

The US economy was good in 2018, but 2019 looks less than solid.

Brexit delayed: UK PM Theresa May announced a procedure in which Parliament may instruct the government to ask for an extension of Article 50, postponing Brexit. This shift, alongside the willingness of the opposition Labour Party to accept a second referendum, sent Sterling skyrocketing and had a positive impact also on the euro. 

It is important to remember that the euro-zone also has a lot to lose from a hard Brexit and that European leaders urged May to ask for a Brexit extension.

Jens Weidmann, the President of the German central bank, acknowledged there is no need to overreact to the slowdown but recognized that the slump extends into 2019. He will continue presiding over the Bundesbank, thus officially out of the race for the presidency of the European Central Bank. Weidmann is considered hawkish.

Euro-zone inflation accelerated to 1.5% on the headline, but the bigger news was a deceleration in Core CPI to 1%, complicating the task for the central bank.

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