EUR/USD Exchange Rate Weakened by Lacklustre Eurozone PMIs
The Euro to US Dollar (EUR/USD) exchange rate is on the defensive this morning as the single currency is pummelled by the latest Eurozone PMI readings.
At the time of writing the EUR/USD exchange rate is down by roughly 0.3% this morning, leaving the pairing just shy of a three-week low.
Euro (EUR) Exchange Rate Softens as Eurozone Comes Dangerously Close to Stalling
The Euro (EUR) has fallen back against the US Dollar (USD) and many of its other peers this morning as the latest Eurozone PMIs make for some gloomy reading.
According to data published by IHS Markit, the Eurozone manufacturing and service sectors continued to slow at the start of 2019, with their respective index’s sliding from 51.4 to 50.5 and 51.2 to 50.8.
This prompted the composite reading to fall to its lowest levels since July 2013 and puts the bloc’s private sector dangerously close to stagnation.
Blow to hopes that #Eurozone #economy can see activity pick-up in first quarter of 2019 after muted second half of 2018 as flash #PMI shows overall #manufacturing & #services output growth weakening further in January to be at 66-month low & marginal (index down to 50.7 from 51.1
— Howard Archer (@HowardArcherUK) January 24, 2019
While a range of temporary factors have been blamed for 2019’s weak start, analysts warn that the PMIs reflect signs of a broader slowdown in the Eurozone.
Chris Williamson, Chief Business Economist at IHS Markit explains:
‘Both the manufacturing and service sectors are close to stagnation, highlighting the broad-based nature of the current slowdown.
‘Ongoing auto sector weakness, Brexit worries, trade wars and the protests in France were again widely cited as factors dampening growth, but the survey responses indicate that a deeper malaise has set in at the start of the year.’
Economists also warn that such a weak reading is more often ‘associated with the European Central Bank (ECB) loosening rather than tightening policy’, something that may be reflected by a more cautious tone from the ECB this year.
EUR/USD Exchange Rate Forecast: Markets Brace for ECB Rate Decision
Looking ahead, the Euro US Dollar (EUR/USD) exchange rate may be set for further losses this afternoon as markets turn their focus towards the ECB’s first rate decision of 2019.
Analysts are forecasting a far more dovish tone from the bank this month, with the policymakers now likely to acknowledge that the slowdown in the Eurozone is more than temporary.
This may force the ECB to revise its forward guidance regarding a rate hike this year, with the Euro likely to tumble if the bank signals its next hike may not be until 2020 at the earliest.
Meanwhile, the US Dollar is likely to enjoy some support in the short-term, with a dovish ECB likely to bolster safe-haven demand.
However the long-term outlook for USD looks less bright, with rising economic uncertainties stemming from the prolonged US government shutdown and a more dovish outlook from the Federal Reserve both likely to weigh on the ‘Greenback’.