The Euro remained heavy on Thursday as Euro-zone GDP contracted 0.2 percent in Q2, dragging the annual rate to a more than 3-year low of 1.5 percent.
This is only the initial estimate of the reading so a breakdown is not available, but the latest PMI reports for the services and manufacturing sectors have signaling a contraction in business activity, signaling waning domestic and foreign demand. Meanwhile, Euro-zone CPI unexpectedly held steady at an annual rate of 4.0 percent. While this is still well above the European Central Bank’s 2.0 percent target, the fact the index didn’t accelerate faster was enough to lead the markets to become more aggressive in pricing in a rate cut by the central bank within the next 12 months. This shift in sentiment, where traders are expecting rate cuts by the ECB and rate hikes by the Fed, puts the odds in favor of additional EUR/USD losses in coming weeks.
