FxPro Analysis: The release of the Eurozone Purchasing Managers' Index (PMIs) has reignited interest in the euro
Interest in the euro surged following preliminary PMI data showing an unexpected acceleration in the service sector, which offset the negative impact of industrial weakness.
FxPro senior analyst Alex Kuptsikevich noted: Manufacturing PMIs for France (46.2→44.9) and Germany (41.9→42.2) were below expectations (46.9 and 42.8, respectively), reinforcing the view that since June 2022, the Eurozone industry's contraction has intensified since the start of this year. This data could lead to an earlier start of the European Central Bank's rate-cutting cycle.
However, the service sector presents a stark contrast. It has been accelerating since the start of the year and entered a growth phase in March. The French service sector index marginally entered the expansion zone (index at 50.5), while Germany's rose sharply from 50.1 to 53.3. The entire Eurozone's Services Purchasing Managers' Index climbed from 51.5 to 52.9, reaching its highest level since May 2023.
In our view, the weakness in the Eurozone industry should not be overlooked, as it could once again be an early signal of economic softness, raising suspicions about an impending rate cut. However, in the short term, the positive surprise in the service sector might lead to a rebound in the euro against the dollar, from a 2.5% drop early in the month from 1.0880 to 1.06, possibly back to 1.07.
