EUR/USD weakens as strong US PMI contrasts with softer Eurozone data

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The Euro (EUR) remains under pressure against the US Dollar (USD) on Friday, even as the Greenback trades broadly flat, with traders weighing fresh US economic data and rising bets on a potential Federal Reserve (Fed) interest rate cut in December.

EUR/USD heads for its first weekly setback in three weeks, pressured by broad US Dollar strength.
US S&P Global PMI beats expectations overall, with services strengthening and new orders rising at the fastest pace this year.
Eurozone PMI shows uneven momentum, with services firm but manufacturing back in contraction.

At the time of writing, EUR/USD is trading around 1.1500, on track for its first weekly decline after two consecutive weeks of gains. Meanwhile, the US Dollar Index (DXY), which measures the Greenback against a basket of six major currencies, is trading near 100.26, holding firm around its highest level in more than five months.

S&P Global’s preliminary US Purchasing Managers Index (PMI) report pointed to another month of solid economic momentum in November. The Composite PMI edged up to 54.8 from 54.6, marking a four-month high. The Services PMI strengthened to 55.0, rising from 54.8 and beating expectations, while the Manufacturing PMI eased to 51.9 from 52.5, missing the 52.0 forecast but still signalling expansion in factory activity.

The survey highlighted the strongest rise in new orders this year, alongside improving business confidence and steady job creation. However, price pressures intensified, with input costs climbing at one of the fastest rates in three years.

The University of Michigan survey offered a mildly upbeat signal for US consumers. The Consumer Expectations Index rose to 51.0, beating the forecast and previous reading of 49, while the Consumer Sentiment Index improved to 51.0 from 50.5, also coming in above expectations. Inflation expectations eased further, with the 1-year outlook slipping to 4.5% from 4.7% and the 5-year measure softening to 3.4% from 3.6%.

Beyond the data, December rate-cut bets revived sharply after New York Fed President John Williams signalled that a near-term policy adjustment remains on the table. Williams said he still sees room for a December rate cut, acknowledging that progress on inflation has “stalled,” even as he expects price growth to return to the 2% target by 2027. He added that economic activity has cooled and the labour market continues to ease gradually.

According to the CME FedWatch Tool, markets now assign nearly a 74% probability to a December rate cut, a sharp jump from roughly 31% earlier in the day.

Across the Atlantic, preliminary Eurozone PMI figures painted a softer picture of the region’s economic momentum. The HCOB Composite PMI slipped to 52.4 from 52.5, missing expectations. The Services PMI rose to an 18-month high at 53.1, outperforming forecasts, but this strength was offset by renewed weakness in manufacturing, where the Manufacturing PMI fell back into contraction at 49.7, below the 50.2 consensus.

Germany remained the main drag on the readings, with activity slowing across both services and manufacturing, while France showed tentative signs of stabilisation thanks to a return to growth in its services sector.

Euro FAQs

What is the Euro?

The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

What is the ECB and how does it impact the Euro?

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

How does inflation data impact the value of the Euro?

Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.

How does economic data influence the value of the Euro?

Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.

How does the Trade Balance impact the Euro?

Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.