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Eurozone PMIs: Euro Firms vs. Sterling and the Dollar Amidst Signs of Improvements in Activity

Euro exchange rates

Image © Grecaud Paul, Adobe Stock

Data out of the Eurozone has comfortably beaten expectations and is helping the Euro exchange rate complex record an advance ahead of the weekend.

Markets were eyeing the release of preliminary survey data out of the Eurozone economy for signs the slowdown witnessed at the start of the year was in fact a blip and looking at the numbers, this could indeed be the case:

The manufacturing PMI for June hit the forecast target at 55.00 but the services PMI beat an expected 53.7 by reading at 55. The overall composite PMI read at 54.8, easily beating expectations for a reading of 53.9.

"Flash PMI survey data for June showed business activity regaining some momentum, albeit failing to fully recover the rate of expansion seen earlier in the year. The upturn was fuelled by an improved service sector performance, which contrasted with a further waning in the pace of manufacturing growth. The service sector was also responsible for driving up price pressures, though also provided the main impetus to stronger employment growth," says a note from IHS Markit, compilers of the PMI series.

The PMI series dropped to a one-and-a-half year low in May as a the break-neck pace of expansion witnessed in 2017 came to an abrupt end, a slowdown that coincided with a broad-based sell-off in the Euro, particularly against the Dollar.

"While not a fantastic result, the release does provide a silver lining to the current streak of disappointing data from the eurozone," says Bert Colijn with ING Bank N.V., adding "the overall trend remains subdued compared to the fast-paced growth from late 2017."

Nevertheless, the Euro needed a break and is seen to be an out-performer on currency markets at the time of writing, partly in response to the data:

Euro is one of the best performers at the time of writing

Above: The Euro is advancing against the majority of its G10 rivals today.

However, much of the Euro's outperformance could largely be down to a more generalised relief rally.

Recall the Euro has not had the best of weeks, largely thanks to the hangover from the sharp drop experienced in the wake of the European Central Bank's June meeting in the previous week. ECB President Mario Draghi and his colleagues offered little support for the single-currency in subsequent appearances in Sintra, Portugal this week.

The Pound vs. Euro exchange rate has edged lower to 1.14 on the back of recent Euro gains, the Euro vs. Dollar exchange rate has however enjoyed a 0.3% day-on-day advance to record 1.3288, thanks in part to the broad-based weakness in the Dollar we are seeing.

Concerning the outlook for the Eurozone economy, a number of analysts are expressing concerns about how growing trade tensions might impact activity.

"With temporary dampening factors (weather disruption, strikes, May bank holiday) out of the way, we project a modest acceleration to 0.5% q/q on average in H2 18. Given the ongoing developing situation regarding the trade war and Italy, we continue to highlight downside risks to our growth outlook," says Francois Cabau with Barclays.

The PMI data comes a day after shares in big European carmakers fell after Germany's Daimler warned of lower earnings this year because of US-China trade tensions.

Daimler forsees lower sales of Mercedes-Benz cars due to a tax on the import of US vehicles into China.

The US is putting tariffs of at least $50bn (£38bn) of Chinese imports. China said it would retaliate with its own tariffs from 6 July in return.

"It could be that weaker confidence among businesses and consumers will bring permanence to the slower growth pace of the first half year. With trade war worries, the running down of QE and political uncertainty back on the menu, strong fundamentals will probably be met with bouts of concern for the second half of the year as well," says ING's Colijn.

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