The Eurozone Manufacturing PMI fell to 44.8 in September, below the consensus forecast of 45.6. The Eurozone Services PMI fell to 50.5 in September versus an expectation of 52.4. EUR/USD remains lower near the 1.1100 level following the German and Eurozone PMI data.
Data from the HCOB’s latest Purchasing Managers’ Index (PMI) survey, released on Monday, showed that the euro zone’s manufacturing sector contracted at an accelerated pace, while service sector activity turned downward in September.
The euro zone manufacturing Purchasing Managers’ Index (PMI) fell to 44.8 in September from 45.8 in August, below the forecast of 45.6. The index fell to its lowest level in nine months.
The European Union’s services PMI fell sharply to 50.5 in September from 52.9 in August. The data was well below market expectations of 52.4 and the lowest in seven months.
The HCOB euro area PMI composite index fell to 48.9 in September, below the expected 50.6 and August’s 51.0, the lowest level in eight months.
EUR/USD Reaction to Eurozone PMI Data
EUR/USD continues to face strong selling pressure following mixed Eurozone PMIs. The pair is trading around 1.1100 at the time of writing, down 0.60% on the day.
Frequently asked questions about the Euro
The Euro is the currency of 20 European Union countries that belong to the Eurozone. It is the second most traded currency in the world after the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily volume of over $2.2 trillion. EUR/USD is the most traded currency pair in the world, accounting for approximately 30% of all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB), located in Frankfurt, Germany, is the reserve bank for the eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s main mission is to maintain price stability, which means either keeping inflation down or stimulating growth. The ECB’s main tool is to raise or lower interest rates. Relatively higher interest rates, or the expectation of rising interest rates, typically benefit the euro and vice versa. The ECB Governing Council decides monetary policy at its eight meetings per year. Decisions are made by the heads of the eurozone national banks and the six permanent members, including ECB President Christine Lagarde.
Eurozone inflation data, as measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric input for the euro. If inflation rises more than expected, especially if it exceeds the ECB’s target of 2%, the ECB will be forced to raise interest rates to keep inflation in check. Relatively high interest rates compared to other countries usually benefit the euro, as they make the eurozone a more attractive place for global investors to park their funds.
Data released measures the health of the economy and can affect 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, it can also trigger the ECB to raise interest rates, which directly strengthens the euro. On the other hand, weak economic data can cause the euro to weaken. Economic data from the eurozone’s four largest economies (Germany, France, Italy, and Spain) is particularly important as they account for 75% of the eurozone’s economy.
Another important piece of data about the euro is the trade balance. This indicator measures the difference between what a country earns from exports and what it spends on imports over a given period of time. If a country produces exports that are in high demand, its currency will only increase in value due to the additional demand it generates from foreign buyers looking to purchase these goods. So a positive trade balance makes a currency stronger, and a negative one makes it stronger.
