Will Eurozone manufacturing and services PMI improve?
EUR/USD weakened on Friday after two days of gains, due to market optimism for the USD despite disappointing US Retail Sales data. The EUR/USD pair dropped lower as better US yields pushed the greenback higher against the EUR. The US Dollar Index (DXY) found support on the expectation that the Fed will avoid rate cuts in March and May. FedWatch Tool shows a 52% probability of a 25 bps rate cut in June. Despite the release of weaker US Retail Sales data, the reduced Initial Jobless Claims provided some support to the dollar.
US Retail Sales dropped by 0.8% month-over-month in January, despite an anticipated decline of 0.1% against the previous 0.4% increase. US Initial Jobless Claims reported 212,000 unemployment claims for the week ending on the 9th of February, beating expectations of 220,000. On Friday, after the release of the US Producer Price Index, the US dollar jumped higher. Monthly Headline PPI moved from -0.1% to 0.3%. Yearly Headline PPI is seen going from 1.0% to 0.9%. Monthly Core PPI reached higher from -0.1% to 0.5%. Yearly Core PPI is seen moving from 1.7% to 2%.
Federal Reserve Bank of Atlanta President Raphael W. Bostic expects inflation to drop further, but if it falls faster, Bostic said he may review his position on the interest rates outlook.
From the Eurozone, Gross Domestic Product (GDP) data for the fourth quarter remained the same, but the ECB’s forward-looking wage tracker suggest strong wage pressures.
President of the European Central Bank (ECB), Christine Lagarde, commented that recent data demonstrates a continued slowdown in economic activity in the near term. Lagarde highlighted the significance of achieving the ECB’s 2% inflation target and the persistent disinflationary trend.
Expected Volatility – Medium
On Thursday, Eurozone PMI figures are expected to show that economic conditions in the Eurozone have continued to improve. Manufacturing PMI is anticipated to rise to 47.0 from previous 46.6. Services PMI is expected to show a smaller contraction as well at 48.7 versus 48.4. The subdued economic conditions may help the disinflation process, and boost optimism.
US initial jobless claims could also move the pair, and if the numbers show that the market remains strong then the USD will strengthen.