Disappointing Eurozone PMIs Leave EUR/USD Exchange Rate Steady
The Euro (EUR) has held close to opening levels against the US Dollar (USD) today, leaving the EUR/USD exchange rate near its highest level since late-May.
This morning’s Eurozone data has covered PMI activity measures for May, which have shown slowing activity during the month.
None of the Eurozone-wide readings have fallen into the contraction range, but the results are still disappointing for Euro traders.
Looking at the data, IHS Markit Chief Business Economist Chris Williamson said:
‘The pace of Eurozone economic growth sank to a one-and-a-half year low in May, and has now slowed continually since January’s peak to suggest that the region is on course for its worst quarter since 2016.
‘The survey signals GDP growth of 0.4-0.5% for the second quarter, but there is much uncertainty as to whether the pace will continue to weaken in coming months.
‘With the economic indicators turning down at the same time as political uncertainty has spiked higher, the Eurozone’s outlook has darkened dramatically compared to the sunny forecast seen at the start of the year.’
US Dollar to Euro (USD/EUR) Exchange Rate Tight on Continued Trade War Concerns
The US Dollar (USD) has traded in a narrow range against the Euro (EUR) today, owing to fears about the future state of international trade.
Last Friday saw US trade officials confirm that the nation will be imposing metal tariffs against imports from the EU, Canada and Mexico.
The international reaction has widely been one of condemnation, with affected nations quickly pledging to impose counter-tariffs against US imports.
Perhaps more worryingly, there are also signs that talks with China might fall through, opening the US up to trade wars on multiple fronts.
The Chinese government has recently warned that progress in talks is resting on unstable ground, stating:
‘All economic and trade outcomes of the talks will not take effect if the US side imposes any trade sanctions, including raising tariffs.’
The situation remains a tense one for US Dollar traders, which explains the limited activity seen so far today.
Euro to US Dollar Exchange Rate Forecast: Will EUR/USD Losses Worsen on Strong US PMI?
The Euro (EUR) remains at risk of making near-term losses against the US Dollar (USD), when high-impact US PMI data comes out this afternoon.
The main data release will be the non-manufacturing reading for May, which is predicted to show growth from 56.8 points to 57.5.
Such an outcome would mean greater activity in the large non-manufacturing sector, potentially to the level that the US Dollar appreciates on the news.
Earlier composite and services PMIs are expected to show mixed readings, but a strong non-manufacturing figure could still greatly support the USD.
Looking further ahead, the Euro could recover when Germany’s construction PMI for May is released on Wednesday; this is expected to show growth.
April’s reading was close to the sub-50 point contraction range, so a forecast-matching rise to 51.5 points could restore confidence among Euro traders.