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EUR: Eurozone PMIs anticipated to support growth outlook

Published 05/20/2024, 03:34 AM
© Reuters
- -- On Monday, the upcoming release of the Purchasing Managers' Index (PMI) reports is expected to shed light on the current economic growth sentiment in the eurozone. The manufacturing and services sectors are both projected to show signs of improvement, although manufacturing is predicted to remain below the expansion threshold. The services sector, on the other hand, is likely to exhibit further growth, contributing to the region's economic optimism.

The euro has seen a slight increase in value, influenced by the positive domestic growth prospects. The future trajectory of the euro, however, hinges not only on the PMI outcomes but also on the European Central Bank's (ECB) response to these indicators. The ECB's approach to its monetary easing policy, particularly after the anticipated June rate cut, will be crucial. Despite this, recent market pricing for the ECB has exhibited minimal volatility.

The euro's rally to 1.09 has been considered somewhat excessive by some, given the ongoing concerns regarding the US disinflation narrative. A consolidation in the range of 1.08-1.09 is viewed as more probable than a significant surge above these levels. Nevertheless, the market has responded to various data releases, indicating a sensitivity to economic indicators, albeit the reactions have been temporary.

The possibility of the euro reaching or even slightly exceeding the 1.0900-1.0950 range cannot be ruled out, especially if the eurozone's PMI data outperforms that of the United States. The upcoming PMI reports and ECB President Christine Lagarde's two speeches this week are highly anticipated events that could influence the euro's valuation and the ECB's monetary policy decisions.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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