DAX dips as investors eye ECB rate annoucement

The DAX index has posted losses in the Thursday session. Currently, the DAX is at 12,849, down 0.32% since the close on  Wednesday. On the release front, German Final CPI climbed 0.5%, a 3-month high. This reading matched the forecast. Later in the day, the ECB winds up its policy meeting and will release a rate statement. On Friday, the eurozone releases Final CPI.

Investors were keeping a close eye on the Federal Reserve on Wednesday. As widely expected, the Federal Reserve raised interest rates by a quarter-point, to a range between 1.75 percent and 2.00 percent. Fed Chair Jerome Powell sounded hawkish in his press conference, saying that the economy was performing well and that “overall outlook for growth remains favorable”. This message echoed the rate statement, in which policymakers said that “economic activity has been rising at a solid rate”, pointing to stronger consumer spending and business investment. What was may have been the most notable development was that the Fed rate projections were revised upwards, predicting two additional rate hikes in 2018, for a total of four hikes. Until now, the Fed had projected three rate hikes this year. This represents a nod to the strength of the U.S economy and could boost the dollar against its rivals.

Fresh from the Fed’s rate hike, the markets will shift their focus to Frankfurt, where the ECB is holding its policy meeting. Will we see any clues with regard to the ECB’s asset-purchase program? Currently, the bank is purchasing EUR 30 billion/mth, and the scheme is scheduled to wind up in September. The eurozone economy hit some headwinds in the first quarter and the new populist government in Italy could pose a major headache for Brussels. This could mean that the ECB will phase out the stimulus program over several months, rather than turn off the tap completely in September. What is clear is that the ECB board members will conduct a detailed discussion about the fate of the stimulus package at this meeting. If ECB President Mario Draghi discusses any new developments regarding stimulus at his press conference, we could see some volatility from EUR/USD on Thursday.

Back to the drawing board

ECB eyed after Fed raises rates

Economic Calendar

• 1:30 German Final CPI. Estimate 0.5%. Actual 0.5%

• 7:45 Eurozone Main Refinancing Rate. Estimate 0.00%

• 8:30 ECB Press Conference

• 2:00 German WPI. Estimate 0.3%

• 5:00 Eurozone Final CPI. Estimate 1.9%

• 5:00 Eurozone Final Core CPI. Estimate 1.1%

Previous Close: 12,890 Open: 12,803 Low: 12,800 High: 12,874 Close: 12,849