EUR/USD Little Changed Despite Upbeat Eurozone PMI Data

Talking Points:

• Latest Euro-Zone data paint a better-than-expected picture
• Growth and inflation both on the up
• EUR/USD little changed as a strong dollar continues to rule the roost

EUR/USD barely moved in early European trading Wednesday despite better-than-expected Eurozone PMIs pointing to stronger growth in Europe. Inflation pressures also jumped to their highest levels in five years, some good news for ECB President Mario Draghi ahead of the December 8 monetary policy meeting in Frankfurt.

The preliminary ‘flash’ Markit Euro-Zone Composite PMI - based on approximately 85% of final survey replies - rose to 54.1, up from 53.3 in October. The latest reading signalled the strongest monthly increase in output since December. A break-down of the figures show the services sector expanding at its fastest rate in 11 months while the manufacturing sector eased slightly.

Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at IHS Markit, said: “The preliminary PMI results for November indicate the sharpest monthly increase in business activity so far this year, with plenty of signs that growth will continue to accelerate. The PMI readings so far for the fourth quarter point to GDP expanding 0.4%, led by a rebound in German growth to 0.5%. France is also seen to be enjoying its best spell since the start of the year, with the PMIs signalling GDP growth of 0.2-0.3% in the fourth quarter.”

Today’s data also highlighted a steady build-up of inflationary pressures in the pipeline. The average prices charged for services and goods recorded the biggest rise in five years. Average input prices showed the largest rise for one-and-a-half years with manufacturing input prices hitting a four-and-a-half year high.

EUR/USD barely changed after the release, with other pressures directing the pair. The US Dollar index (DXY) remains close to its highest level since 2004, while the yield differential between the 2-year US Treasury and its German counterpart is just over 181 basis points, the widest differential in 11 years.

EUR/USD 30-minute chart – November 18-23

--- Written by Nick Cawley, Analyst

To contact Nick, email him at nicholas.cawley@ig.com