- Unexpectedly low Euro Zone PMI data in May leads to a drop in EUR/USD to around 1.1310.
- President Trump cautions that Russia may not agree to end the war in Ukraine.
- ECB’s Nagel expresses hope for a trade agreement between the EU and the US.
During European trading on Thursday, EUR/USD came under selling pressure, slipping to about 1.1310. This decline followed the release of disappointing Eurozone HCOB Purchase Manager Index (PMI) data for May, which indicated poor performance for the euro. The reported PMI dropped to 49.5 from April’s 50.4, signaling a contraction in overall business activity, as a figure below 50.0 indicates shrinking activity.
The PMI report highlighted that service sector activity unexpectedly declined for the first time since November 2024, while manufacturing growth slowed more than anticipated. These contraction signs are certainly not positive for the euro.
Adding to the euro’s struggles is the uncertainty surrounding the ceasefire talks between Russia and Ukraine in Vatican City. President Trump recently threw cold water on ceasefire hopes during a call with European leaders, indicating he felt President Putin was gaining an advantage in the war. This lack of optimism could weigh further on the euro.
Interestingly, Trump’s viewpoint contrasts sharply with earlier statements that touted an agreement for an immediate ceasefire and expressed optimism for resolving the conflict. However, specifics regarding a timeline for talks were lacking.
Further pressure on the euro stems from strong expectations that the European Central Bank (ECB) will reduce interest rates at its upcoming June meeting. ECB officials have indicated the need for additional monetary policy measures to combat risks linked to inflation in the Eurozone. Mario Centeno, Governor of the Bank of Portugal, noted that rates may even need to dip below the natural level, suggesting a target reduction to about 1.5% to 2% to maintain inflation around 2%.
On a broader scale, Bundesbank President Joachim Nagel expressed optimism about progress in trade discussions with the US, stating that both Washington and Brussels recognize there are no winners in their trade quarrels. He felt slightly more confident than just days before, suggesting a better understanding from the US side.
Daily Digest Market Mover: EUR/USD Slides Due to Euro Weakness
- On Thursday, the euro traded lower, struggling against its peers after the disappointing PMI data from the Eurozone. Concerns over a fiscal crisis and rising national debt also pressured the US dollar.
- The Republican-controlled House Rules Committee advanced Trump’s new tax bill, enabling it for a full House vote.
- This proposed tax cut could increase US debt by an estimated $3.8 trillion over the next ten years, intensifying worries about the current $36.2 trillion debt. Notably, Moody’s downgraded the US sovereign credit rating from AAA to AA1 this week, citing debt concerns.
- On the monetary policy front, Federal Reserve officials support maintaining current interest rates amid uncertainty regarding the US economic future, partially driven by Trump’s new economic policies.
- Jamie Dimon, CEO of JPMorgan Chase & Co., endorsed the Fed’s cautious stance on interest rates. He mentioned the potential risks of stagnation due to high interest rates and other pressures but believes the Fed is making the right choice by taking its time.
- Investors are now looking ahead to the preliminary US S&P Global PMI data for May, set to be released at 13:45 GMT.
Technical Analysis: EUR/USD Fluctuates Around 1.1320
The EUR/USD pair is moving within the trading range established on Wednesday and continuing into Thursday. Recently, the outlook appears somewhat bullish, with the pair maintaining a position above the 20-day exponential moving average (EMA).
The relative strength index (RSI) for the 14-period shows indecisiveness, fluctuating between 40.00 and 60.00, reflecting uncertainty among traders.
A significant resistance level for this pair is the April 28th high at 1.1425, while 1.1000 serves as key psychological support for euro bulls.
