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Eurozone Preliminary Manufacturing PMI declines to 45.6 in June vs. 47.9 expected

  • Eurozone Manufacturing PMI dropped to 45.6 in June, missing 47.9 estimate.
  • Bloc’s Services PMI dipped to 52.2 in June vs. 53.5 anticipated.
  • EUR/USD keeps losses below 1.0700 after German, Eurozone PMI data.

The Eurozone manufacturing sector downturn gathered momentum again while the services sector activity deteriorated in June, according to the data from the HCOB's latest purchasing managers index survey published on Friday.

The Eurozone Manufacturing Purchasing Managers Index (PMI) dropped from 47.3 in May to 45.6 in June, missing the market forecast of 47.9. The index tumbled to a six-month trough.

The bloc’s Services PMI dropped from 53.2 in May to 52.2 June. The data fell short of the market expectations of 53.5 and hit a three-month low.

The HCOB Eurozone PMI Composite fell sharply to 50.8 in June vs. 52.5 expected and May’s 52.2 reading. The index reached a three-month low.

EUR/USD reaction to the Eurozone PMIs data

EUR/USD is keeping losses near 1.0675 following the downbeat Eurozone PMIs. The spot is losing 0.20% on the day, at the press time.

Euro FAQs

The Euro is the currency for the 20 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.

Author

Dhwani Mehta

Dhwani Mehta

FXStreet

Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.

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