EUR/USD is steady in Friday trading. In the European session, the pair continues to trade in the mid-1.34 range. Eurozone inflation indicators continue to point lower, as both CPI and Core CPI dropped in October. In the US, today’s highlight is the Empire State Manufacturing Index. On Thursday, both the US and Eurozone posted weak releases. Eurozone GDP disappointed, posting a weak gain of just 0.1% in October. In the US, Unemployment Claims came in above the estimate, and the trade deficit widened.
Unemployment Claims have been fairly steady over the past few weeks, but with speculation increasing about a possible December taper by the Federal Reserve, every employment release is under the market’s microscope. The indicator showed little change with a reading of 339 thousand, but this was above the estimate of 331 thousand. There wasn’t any relief from Thursday’s other key release, Trade Balance. The October deficit widened to -$41.8 billion, compared to -$38.8 billion in September. This was well above the estimate of -$38.7 billion.
Incoming Federal Reserve head Janet Yellen testified before the powerful Senate Banking Committee on Thursday. Yellen is a strong supporter of QE, and told the committee that the present level of asset purchases should continue until growth improves and unemployment falls. She said that the labor market and economy are performing “far short of their potential”, but added that she expects inflation to remain below the Fed’s target of 2%. Yellen, who will become the first woman to head the Federal Reserve, takes over from Bernard Bernanke in January
The Eurozone continues to be marked by low inflation, and this was underscored by Friday’s inflation numbers. CPI came in at 0.7%, and Core CPI posted a gain of 0.8%. Although both indexes matched the forecast, they dropped below last month’s numbers, pointing to weakening inflation. These figures come on the heels of weak Eurozone GDP releases on Thursday. The ECB lowered interest rates last week in an attempt to improve economic growth and raise inflation, and the markets will be waiting to see if upcoming releases respond positively to the rate cut.
The Greek government has imposed sharp austerity measures to get its fiscal house in order, but stumbling blocks remain on what continues to be a very bumpy road to economic recovery. The troika has promised Greece another installment of aid worth 1 billion euros, but wants to see the country plug a 2 billion euro hole in its 2014 budget. The Greek government has rejected tax hikes or cuts in wages or pensions, which will make it difficult to eliminate this deficit. The troika has already provided Greece with some 240 billion euros in aid since 2010 and is insisting that the government stay within its 2014 budget, and has threatened to suspend the next installment until Athens takes further steps to keep costs under control. We can expect the tug-of-war between the sides to continue for some time.