Euro US Dollar (EUR/USD) Exchange Rate Fluctuates Despite Better-than-Expected Eurozone PMI Data
The Euro US Dollar (EUR/USD) exchange rate is trading narrowly this morning even as Euro area PMI data printed above expectations. Hopes of avoiding a technical recession in the Eurozone are buoying EUR investors.
At time of writing, the EUR/USD exchange rate is around $1.0859, relatively unchanged from this morning’s opening levels.
Euro (EUR) Underpinned by Recovering Economic Hopes
The Euro (EUR) exchange rate is enjoying moderate success against its weaker peers this morning as PMI data printed better than expected.
The manufacturing sector, despite remaining in contraction territory, marked a fourth consecutive month of improvement and the highest level since August 2022. Against expectations of 48.5, manufacturing came in at 48.8, a jump from the previous month’s 47.7.
Meanwhile, the service sector also surprised to the upside and marked the first month of expansion in the sector since July. Versus an expected 50.2, the sector improved to 50.7, a much-improved figure over last month’s 49.8. Bert Colijn, senior Eurozone economist at ING, is confident of a bolstered rate hike from the European Central Bank (ECB):
‘The jump in the composite PMI from 49.3 to 50.2 indicates that the economy is performing better than expected. Businesses are experiencing fewer cost pressures than before, but selling prices remain high. For the ECB, this should seal the deal for a 50 basis point hike next week.’
The Euro could pull away from the US Dollar as optimism surrounding the Eurozone economy steadily improves. The latest data release remains consistent with ECB President Christine Lagarde’s comments on the Euro area economy modestly improving. The possibility of the Euro area avoiding a technical recession could buoy EUR investors.
US Dollar (USD) Quiet amid Mixed Market Mood
Meanwhile, the US Dollar is struggling for a clear direction this morning as the market remains cautious ahead of PMI data this afternoon.
Pared rate hike bets from the Federal Reserve could be keeping a firm lid on the ‘Greenback’. With expectations of US inflation having finally peaked, the Fed could be starting to think about slowing their aggressive rate hike cycle. Victoria Scholar, Head of Investment at Interactive Investor, said of the situation:
‘Expectations are for two (25bps) increases in the first quarter of 2023 before a pause on interest rates for the rest of the year, in stark contrast to last year’s inflation combative stream of jumbo Fed rate hikes.’
Euro US Dollar Exchange Rate Forecast: US PMI to Confirm Fed Rate Hike Slowdown?
Looking ahead, the Euro US Dollar exchange rate could see further movement with the release of US PMI data. Despite both the manufacturing and service sectors to remain in contraction territory, an improvement is expected for both. However, if the figures print worse than expected, the US Dollar could slip.
Elsewhere, without any major economic data to go by for the rest of the day, the Euro could be left to trade on external pressures. A speech from ECB member Kerstin af Jochnick could shed further light on the central bank’s monetary policy.
