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Strong Euro-Zone PMI Data Unlikely to Persuade ECB to Change Course

Strong Euro-Zone PMI Data Unlikely to Persuade ECB to Change Course

Martin Essex, MSTA,

Talking Points:

- Euro-Zone manufacturing PMI climbs to 53.5 in October from 52.6 in September

- EUR/USD continues to climb through mid-$1.1000s.

- ECB still likely to extend its asset-purchase program at December policy meeting.

See what live coverage is scheduled to cover key event risk for the FX and capital markets on the DailyFX Webinar Calendar.

The Euro built on its recent gains against the US Dollar Wednesday after news that the Purchasing Managers’ Index for the Euro-Zone climbed to 53.5 in October, up from 52.6 in September and from a “flash” October reading of 53.3. Any figure above 50 implies expansion rather than contraction.

Despite hopes that the Euro-Zone economy will pick up in the final three months of 2016, the growth outlook for 2017 is more than usually uncertain because of the UK’s Brexit vote to leave the EU, elections in Germany and France, and political problems in Italy and Spain. Moreover, core Euro-Zone consumer price inflation remains weak: it remained at just +0.8% in October, according to figures released earlier this week. That was below the +0.9% recorded in both June and July.

Against this background, the ECB is likely to extend its €80 billion per month bond-buying program from March to September when it meets on December 8 although the amount is expected to remain unchanged, as its deposit rate, which is already at -0.40%.

On Wednesday, the German Council of Economic Experts – formerly called the Five Wise Men but now including a woman – called on the ECB to scrap or at least reduce its asset-buying program but, for now at least, that seems likely to be ignored.

Chart 1: EUR/USD 1-hour Chart (November 2, 2016)

EUR/USD has advanced from a recent low of $1.0848 on October 25 to a high of $1.1100 in morning European trading Wednesday. However, the European Central Bank is still widely expected to keep Euro-Zone monetary policy loose and to extend its asset-purchase program by six months to September next year.

Upcoming Event Risk

EventsDate, Time (GMT)ForecastPrevious
Swiss Consumer Confidence (Oct)11/3, 06:45-13-15
UK New Car Registrations (YoY) (Oct)11/3, 09:001.6%
ECB Economic Bulletin11/3, 09:00
UK Official Reserves (Oct)11/3, 09:30$722m
UK Services PMI (Oct)11/3, 09:3052.552.6
UK Composite PMI (Oct)11/3, 09:3053.553.9
Euro-Zone Unemployment (Sep)11/3, 10:0010.0%10.1%
Bank of England Rate Decision11/3, 12:000.25%0.25%
Bank of England Asset Purchase Target11/3, 12:00£435bn£435bn
Bank of England Inflation Report11/3, 12:00
Bank of England Corporate Bond Target11/3, 12:00£10bn£10bn
Bank of England Deputy Governor Jon Cunliffe Speaks in London11/3, 20:55

Notable Markets

UK Index / Exchange RateChange (Exchange Hours/GMT Session Rollover)Market Close/Last
CAC 40-0.77%4,435

Read more: Euro Continues Gains as German Unemployment Falls to 25-Year Low

--- Written by Martin Essex, DailyFX Research

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.