Euro up after PMI data

EUR/USD seems well-supported above the round-level support of 1.0800 in Friday’s New York session. The strength in the major currency pair is majorly driven by strong Eurozone preliminary Purchasing Managers Index (PMI) data for May. The strong Composite PMI has improved the Eurozone’s economic outlook, but the likelihood of the European Central Bank (ECB) lowering interest rates in the short term remains firm. 

S&P Global reported on Thursday that the Composite PMI jumped to 52.3, beating the consensus of 52.0 and the former release of 51.7. The PMI data rose for the third consecutive month even though the ECB is maintaining a restrictive policy framework. 

Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank (HCOB) – which also publishes the PMI data in collaboration with S&P Global – said: “This time, there is also some good news for the ECB as the rates of inflation for input and output prices in the services sector have softened compared to the month before. This will be supportive of the apparent stance of the ECB to cut rates at the meeting on June 6. However, the better inflation outlook will most probably not be enough for the central bank to announce that further rate cuts will follow suit.” 

Meanwhile, deepening uncertainty over whether the ECB would reduce interest rates in the July meeting too is keeping the Euro firm. In Friday's European session, ECB board member Isabel Schnabel advised that the centreal bank should be cautious over lowering interest rates quickly. Schnabel agreed that there is a noticeable decline in price pressures but some elements such as domestic and service inflation are still persistent.