Wednesday of this week will most likely see the Fed increase interest rates to 2%. The economic data has been strong enough to convince the committee that more rates are needed to stay ahead of inflation. The rate increase, and the language of the statement, are expected to confirm the growth differential between the US and other major economies. If this occurs then the rally in the dollar could continue. The result of the Fed meeting will shortly be followed by the ECB meeting on Thursday.
After taking a more bullish tone recently, the ECB has an opportunity to align market expectations to theirs at this meeting. Since the Italian elections and the threat of a referendum that would put into question the need to stay into the Euro we have seen market participants put a gloomier outlook on the Euro countries than the ECB.
Eurozone CPI had a preliminary reading of nearly 2% and that is being confirmed this week. Core inflation is still low, but is also showing a spike in the preliminary reading. GDP, while recently pulling back, is close to multi year highs. There is a growth differential at the current moment. Whether the US comes back into the fold of the rest of global performance, or is leading the way to higher growth rates in the developed world will not only be decided by the markets, but checked by the data and the Fed. This week will be one of those checks.