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Euro Stable as PMIs Leave Euro-Zone Tapering Expectations Intact

Euro Stable as PMIs Leave Euro-Zone Tapering Expectations Intact

Martin Essex, MSTA, Analyst

Talking Points

- Euro-Zone economic growth eased in October but remained strong, according to the latest purchasing managers’ indexes.

- That means the European Central Bank is still likely to announce a tightening of monetary policy Thursday.

- The Euro was stable after the data and will likely remain little changed until Thursday’s announcement.

What Does the Fourth Quarter Hold for the Euro, Equities, Oil and Other Key Markets? Find out here

The Euro-Zone’s manufacturing and service sectors continued to grow strongly in October, although the latest composite purchasing managers’ index for the region missed expectations, according to the latest data from IHS Markit. The release had little impact on the Euro, which will likely hold its ground ahead of Thursday’s meeting of the European Central Bank’s Governing Council, when it is forecast to announce a reduction of its stimulus program for the Euro-Zone.

Read my preview of the ECB meeting here.

According to IHS Markit, the Euro-Zone composite PMI eased to 55.9 in October from 56.7 in September, missing expectations of a more modest dip to 56.5. The manufacturing PMI came in above economists’ consensus forecast but that was outweighed by a larger than predicted drop in the services PMI.

Still, the data continue to point to firm economic growth in the region. “The recent strong growth of the Euro area economy was maintained at the start of the final quarter of the year, driven by another marked improvement in new orders. Rising workloads encouraged firms to take on extra staff at the sharpest pace in over a decade,” commented IHS Markit.

Listen in to the DailyFX European Desk Round Table Webinar: UK's Brexit "May-hem" and ECB's QE Taper at 1100 GMT. You can sign up here.

The big-two Euro-Zone economies of France and Germany drove growth during October, comfortably outperforming the rest of the single-currency area. France posted the sharpest rise in output since May 2011, while growth in Germany remained strong despite easing slightly, the data provider added. It reckons that after signaling a 0.7% increase in GDP in the third-quarter of the year, the pace of expansion looks to be staying around this mark as the year draws to a close.

Following the release of the numbers, the Euro moved ahead modestly as the data do nothing to alter predictions that the ECB will announce a “tapering” of its asset-purchase program Thursday, likely to take place early in the New Year. Late Monday, EUR/USD hit its lowest level for two weeks.

Chart: EUR/USD Five-Minute Timeframe (October 24, 2017)

Euro Stable as PMIs Leave Euro-Zone Tapering Expectations Intact

Chart by IG

Looking ahead, the political turmoil in Spain has so far had little impact on the Euro and that looks set to remain the case. Traders will therefore continue to concentrate on the ECB’s decisions Thursday, when a halving of its monthly asset purchases early next year continues to be the most likely option – one that would leave the Euro close to its current levels.

--- Written by Martin Essex, Analyst and Editor

To contact Martin, email him at martin.essex@ig.com

Follow Martin on Twitter @MartinSEssex

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