EUR/USD falls after flash Eurozone PMI data
- EUR/USD slumps to near 1.0470 after the release of February's preliminary PMI data for the Eurozone and its major nations.
- The Eurozone Composite PMI expanded at a steady pace of 50.2 in February.
- Investors expect Trump’s tariff agenda won’t hurt much than anticipated earlier.
EUR/USD slides to near 1.0470 in Friday’s European session. The major currency pair weakens after the release of the Hamburg Commercial Bank's (HCOB) preliminary Purchasing Managers Index (PMI) data for February for the Eurozone and its major nations. The Eurozone HCOB PMI report, compiled by S&P Global, showed that overall business activity expanded at a steady pace but slower than expected. The Composite PMI read 50.2 against estimates of 50.5.
The report showed that the Manufacturing PMI continued to contract. However, the pace at which the economic data declined was slower than estimates and the former reading. Meanwhile, activities in the services sector expanded. The pace at which the data advanced was surprisingly slower than the prior release.
“Economic output in the Eurozone is barely moving at all. The somewhat milder recession in the manufacturing sector is only just being overcompensated by the barely noticeable growth in the services sector. There is certainly hope for a German government that will be able to act after the elections, which should also provide a positive impetus for the eurozone as a whole. However, this is offset by a relatively unstable situation in France and a US customs policy that is spreading uncertainty. These figures, therefore, do not yet point to a recovery in the eurozone.” Dr. Cyrus de la Rubia, Chief Economist at HCOB, said.
A steady growth in the Eurozone PMI data is unlikely to provide relief to European Central Bank (ECB) officials, who have been worried about upside risks to economic growth. Traders have fully priced in three more interest rate cuts by the ECB this year. The ECB also reduced its Deposit Facility rate by 25 basis points (bps) to 2.75% last month.
In today’s session, investors will also focus on the flash United States (US) S&P Global PMI data for February, which will be published at 14:45 GMT.
Daily digest market movers: EUR/USD faces pressure as US Dollar strives for firm footing
- EUR/USD struggles to hold Thursday’s gains near the psychological level of 1.0500 as the US Dollar (USD) strives to gain ground after posting a fresh Year-to-Date (YTD) low, with the US Dollar Index (DXY) rising to 106.65 from 106.30.
- On Thursday, the Greenback faced a sharp sell-off as market mood improved. Investors expect United States (US) President Donald Trump’s tariffs agenda will not be much more terrifying than the market had anticipated.
- Till now, President Trump has imposed 25% tariffs on steel and aluminum, 10% on all imports from China, and has threatened to introduce reciprocal tariffs, with a 25% levy on automobiles, semiconductors, and pharmaceuticals by April. Market participants had anticipated that Trump would force tariffs soon after returning to the White House.
- The ambiguity surrounding President Trump’s tariff policies appears to have bought time for US trading partners to negotiate a deal with him, potentially limiting the impact of tariffs on their economies. On Thursday, European Union (EU) trade chief Maros Sefcovic said the US has shown some willingness to mutually reduce tariffs. Sefcovic’s comments came after having a long meeting with Trump's top trade officials. He added that his number one priority is to avoid economic pain for both nations.
- Apart from Trump’s tariff agenda, growing optimism over the Russia-Ukraine truce has also weighed on the US Dollar. President Trump has agreed to hold more talks with Russia, including Ukraine and Europe, to end the war. On Thursday, US Treasury Secretary Scott Bessent said the President is committed to ending the war “quickly” and added that Russia could see some sanctions relief for negotiating an end to its war with Ukraine.
- On the monetary policy front, Federal Reserve (Fed) officials have been guiding a restrictive monetary policy stance amid concerns over upside risks to inflation due to Trump’s economic agenda.
Technical Analysis: EUR/USD stays above 50-day EMA
EUR/USD falls slightly to near 1.0470 in European trading hours on Friday after revisiting the three-week high of 1.0500 on Thursday. The 50-day Exponential Moving Average (EMA) continues to offer support to the major currency pair around 1.0436.
The 14-day Relative Strength Index (RSI) struggles to break above 60.00. A bullish momentum would activate if the RSI (14) manages to sustain above that level.
Looking down, the February 10 low of 1.0285 will act as the major support zone for the pair. Conversely, the December 6 high of 1.0630 will be the key barrier for the Euro bulls.
Euro FAQs
The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.