The euro is showing limited movement in the Tuesday session. Currently, EUR/USD is trading at 1.2330, up 0.10% on the day. On the release front, German Preliminary CPI is expected to rebound with a gain of 0.5%. In the US, the markets are braced for weak data from durable goods. Core Durable Goods Orders are forecast to dip to 0.4%, and Durable Goods Orders are expected to decline 2.4%. Another key release is CB Consumer Confidence, which is expected to climb to 126.2 points. As well, Jerome Powell will testify before a congressional committee.
It hasn’t been a smooth ride for Jerome Powell, who took over as chair of the Federal Reserve from Janet Yellen earlier this month. Powell received a rude welcome from the markets just after moving into his new office, as the global stock market correction erased some $4 trillion in valuations. The volatility forced Powell to make a public statement, reassuring the markets that the Fed was closely monitoring the situation.
How will the dollar react to Powell’s testimony before the House Banking Committee? After the recent turmoil in the stock markets, Powell may opt to play it safe and keep away from any splashy headlines, which could lead to more fluctuation in the markets. Powell could choose to focus on the strong US economy and the Fed trimming its balance sheet, and steer away from a discussion of accelerating rate policy in order to head off higher inflation.
On Thursday, the ECB released the minutes of its January meeting. The markets were looking for some hints regarding future monetary policy, and policymakers indicated that they could re-examine the Bank’s monetary policy “early this year”. The ECB is keeping a close eye on inflation, which has been moving upwards. Still, with inflation below the ECB target of just below 2%, there is little talk about raising interest rates. Policymakers also indicated concern with exchange rates, a theme which has been addressed by Mario Draghi in recent weeks, given the appreciation of the euro – EUR/USD has climbed 2.8% since the start of the year. The minutes voiced “concerns about the recent volatility in the euro exchange rate, which represented a source of uncertainty that had to be monitored with respect to its implications for the medium-term outlook for price stability”. The euro has seen plenty of volatility in February, and currency volatility will likely be high on the agenda of the next policy meeting in March.