Home Daily Commentaries Manufacturing sector in Europe contracts adding to the Euro’s woes

Manufacturing sector in Europe contracts adding to the Euro’s woes

Conor Fleming
Written by
Conor Fleming

Conor Fleming

OFXpert

With 30 years of experience in the foreign exchange world, Conor spearheads initiatives to encourage businesses in Germany, Switzerland, and Austria to hedge their foreign currency risks with OFX.

| Friday 22 March, 2024

Daily Currency Update

The euro has fallen after both the German and Eurozone Purchasing Managers Index (PMI) showed a contraction in manufacturing. Although the broader PMI Index was reasonable the slump in manufacturing brought the overall average down. It looks likely that this data points to a deeper manufacturing contraction in Germany and the EU and fuelled speculation around the timing of the ECB's first interest rate cut in 2024.

The Pound sold off sharply today after the Bank of England voted to keep interest rates at 5.25%. Monetary Policy Committee member, Catherine Mann, who in the last four meetings voted to increase rates decided to switch and voted to leave them unchanged. The market viewed this as quite dovish, and the Pound fell over 1% vs the Dollar and by 0.5% vs the Euro.

The US Dollar Index (DXY ) rallied over 0.5% today. After the Federal Reserve decided to leave rates unchanged Treasury Bond Yields across the entire curve and this prompted strong US Dollar buying through Thursday. Even though inflation has been quite hot in the US over the last few months the Fed chair, Jerome Powell, said the bank will not over-react.

Key Movers

The Euro will likely come under renewed pressure as the ECB runs out of reasons not to begin cutting interest rates. We have seen a slowdown in economic growth and inflation does appear to be moving sideways to downward. This may not be as fast as the ECB Governing Council would like but with the economies in Europe slowing a rate cut seems quite possible at their June meeting.

In the UK the probability of a rate cut in June rose to 65%. Additionally, the UK 2-year Gilt yield fell 8 basis points which in turn put pressure on the Pound. Inflation is cooling and with economic growth quite where the Bank of England would like it seems that a rate cut is required to bolster or at the very least stem growth from present levels.

Economic data in the US is soaring and the market is fully pricing in 75 basis points of interest rate cuts through 2024. Even though rate cuts are expected this Summer the market continues to purchase the US Dollar and invest in Treasury Yields. This trend is likely to continue through the month of April as the market sees the US economy outperforming both the Eurozone and the UK.

Expected Ranges

  • GBP/USD: 1.2550 - 1.2650 ▼
  • GBP/EUR: 1.1600 - 1.1700 ▼
  • GBP/AUD: 1.9300 - 1.9400 ▼
  • EUR/USD: 1.0750 - 1.0850 ▼

Written by

Conor Fleming

OFXpert

With 30 years of experience in the foreign exchange world, Conor first embarked on his financial career journey as a trainee dealer in BNP Paribas in the early 90s. His professional journey also took him to New York, where he assumed the role of Head of Sales with an Irish bank for a few years. During his tenure at both banks, he was invited to several interviews on Irish television to discuss market turbulence, the factors driving volatility and insights into what could be expected as events unfolded.