The euro slipped against the US dollar as data out of Europe proved to be exceptionally weak.
Indeed, the Euro-zone purchasing managers’ index (PMI) for both the manufacturing and services sectors fell below 50 - signaling contracting business conditions - for the fourth consecutive month. Even worse, the composite index slumped to a reading of 47, which is the worst reading since November 2001. The data suggests that the risks for a Euro-zone recession remains high, and is much of the reason why the markets are expecting at least one rate cut by the European Central Bank with in the next 12 months, according to Credit Suisse overnight index swaps (OIS). On the other hand, we need to keep in mind the fact that inflation in the region remains well above the ECB’s 2 percent target at 3.8 percent, and with their primary mandate being to maintain price stability, traders shouldn’t count on seeing that rate cut anytime soon. Looking ahead to Wednesday, the German IFO survey will be released and is expected to reflect more pessimistic business sentiment. However, last week’s German ZEW figures actually revealed an improvement in investor confidence, and as a result, there is potential for a surprise rise in this German IFO reading and a boost in EUR/USD on Wednesday morning.
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Written by Terri Belkas, Currency Strategist for DailyFX.com
E-mail: tbelkas@dailyfx.com
