Eurozone Economy Stumbles as Composite PMI Drops.

EUR: S&P Global reported that the Eurozone’s economic recovery faltered at the end of Q2. The Composite PMI dropped to 50.8, down from May’s 52.2 and missing the forecast of 52.5. Manufacturing remained deep in contraction at 45.6 (expected: 47.9, previous: 47.3). The services sector, however, continued to grow, registering 52.6 (expected: 53.5, previous: 53.2). The Euro weakened before the Eurozone PMI release, influenced by disappointing German and French PMI figures released earlier. In the 45 minutes after the German PMI release, the Euro fell by a third of a percent against the Dollar. According to S&P Global, new orders fell for the first time in four months, leading to slower growth in business activity and employment. The ECB’s recent rate cut in June may be followed by more cuts, as input cost and output price inflation eased to multi-month lows. Business confidence dropped to its lowest since February. Bert Colijn, Senior Economist for the Eurozone at ING Bank, noted, “The lower PMI in June suggests slower Q2 growth than expected. Easing price pressures align with cautious easing from the ECB.”

USD: The U.S. Dollar remains in demand despite signs of a slowing economy. Recent housing and labor market data were weak, and upcoming PMI data are expected to show reduced activity. Fed officials remain cautious, requiring more data before cutting interest rates. The Fed’s latest meeting reduced this year’s rate cut forecast from three to one. In contrast, the ECB, the Swiss National Bank, and the Bank of England have all moved towards cutting rates, with the BoE expected to follow suit in August. ING analysts noted, “The Swiss National Bank’s surprise rate cut and the BoE’s dovish hold suggest European central banks are ahead of the Fed in rate cuts, benefiting the Dollar.”

GBP: GBP/USD slipped 0.1% to 1.2652, nearing a five-week low post-BoE’s policy meeting. The BoE kept rates unchanged, but some policymakers hinted at a possible cut in August. Sterling found some support from a sharp rise in British retail sales in May, rebounding 2.9% after April’s 1.8% drop. EUR/USD also fell 0.1% to 1.0692, following a 0.4% decline in the previous session amid weak economic data and political concerns in the region. Eurozone business growth slowed significantly, with the services sector showing weakness and manufacturing worsening. The preliminary composite PMI for the Eurozone fell to 50.8 from May’s 52.2, contrary to expectations of a rise to 52.5. ING added, “With dovish signals from major European counterparts and ongoing EU fiscal and political uncertainties, the Euro is under pressure this week.”