EUR/USD Outlook: Euro Shrugs Off Firm Eurozone PMI
EUR/USD Analysis and Talking Points
- Eurozone PMI Surprises to the Upside
- Geopolitical Tensions Countered by Reduced Covid Restrictions
- Growth Risks Geared to the Downside
Main Point: Flash PMI’s in the Eurozone have on the whole printed better than expectations. This may come as a slight surprise given that this data would take into account the Russia-Ukraine war. However, had it not been for the easing of Covid-19 restrictions to the lowest since the start of the pandemic, the hit to business activity would have been sharper. That said, the ongoing geopolitical conflict is having an impact on the Euro Area, particularly with surging energy prices, which risks the growth falling into decline in the second quarter. While the PMI surveys have held up for now, risks are tilted to the downside with businesses bracing for a weaker growth environment.
Eurozone PMI Remains Firm Despite Russian Invasion
Market Reaction: In reaction to the better than expected PMI reports, the move in the Euro has been marginal at best. Unless there is progress in regard to a peace deal between Russia and the Ukraine, European FX remains vulnerable to the downside. At the same time, with the Fed gearing up for a 50bps move at the May meeting, rate differentials favour the USD over the Euro.
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