- Eurozone Manufacturing PMI declined to 44.8 in September, below the 45.6 consensus.
- Bloc’s Services PMI slips to 50.5 in September vs. 52.4 forecast.
- EUR/USD remains in the red near 1.1100 after German, Eurozone PMI data.
The Eurozone manufacturing sector contraction gathered steam while the services sector activity turned south in September, according to the data from the HCOB’s latest Purchasing Managers Index (PMI) Survey published on Monday.
The Eurozone Manufacturing Purchasing Managers Index (PMI) dropped from 45.8 in August to 44.8 in September, missing the expected 45.6 figure. The index plunged to a nine-month low.
The bloc’s Services PMI tumbled from 52.9 in August to 50.5 in September. The data came in way below the market forecast of 52.4 and hit a seven-month bottom.
The HCOB Eurozone PMI Composite contracts to 48.9 in September vs. 50.6 expected and August’s 51.0 readout, registering an eight-month low.
EUR/USD reaction to the Eurozone PMIs data
EUR/USD remains under intense selling pressure following the mixed Eurozone PMIs. The pair is losing 0.60% on the day to trade near 1.1100, 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.
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