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03/06/24
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EUR Flat After Improving Eurozone Manufacturing
On Monday, the euro was slightly lower, and EUR/USD traded at about 1.0835, down 0.11% for the day in the European session.
Although the manufacturing sector in the eurozone is still contracting there is light at the end of the tunnel. In May, the manufacturing PMI rose to 47.3 from April’s 45.7, and slightly lower than the 47.4 market estimate. This was the highest reading in 14 months.
The biggest economy in the eurozone, Germany, also showed a softer manufacturing production contraction. Manufacturing PMI accelerated from 42.5 in April to 45.4, in line with expectations. On Tuesday, Germany and the eurozone will release services PMIs and both releases will likely show growth.
The European Central Bank is generally expected to cut interest rates at its meeting on Thursday for the first time since Mar. 2016. The ECB’s steep rate-hiking cycle has resulted in inflation falling from more than 10% to the current rate of 2.6%.
Although this is still higher than the ECB’s 2% target, the central bank is confident enough that inflation won’t rebound after cutting rates. Last week’s May CPI report showed that core and headline CPI unexpectedly accelerated, but this will not likely derail the ECB from cutting rates.
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