Euro knocked off 16-month highs on weak business activity

Eurozone PMI indicates steeper downturn for the economy

By Nadia Elbilassy | @Nadia Elbilassy | 24 July 2023

midday (3)
  • The euro ekes out gains near 1.1080 after touching a monthly high of 1.127

  • Markets anticipate a 25 basis point interest rate hike by the ECB to address inflation, which stands at 5.5%

  • The German manufacturing sector contracted at its fastest pace since 2020

Business activity in the eurozone slows down

Recent data has shown a greater-than-expected slowdown in business activity in the eurozone, as demand for services fell, while factory output fell at its fastest pace since the outbreak of the COVID-19 back in 2020. The composite PMI index fell to its lowest level in eight months at 48.9 in July from 49.9 in June.

In July, producers significantly reduced their output, as shown by the figure. The manufacturing sector's Purchasing Managers' Index (PMI) declined to 42.7, while the Service PMI dropped to 51.1, marking its lowest level since January.

Germany also faces disappointing data

The HCOB Flash Germany Composite PMI production index declined for the third consecutive month, reaching 48.3 in July, down from 50.6 in June. This marks the first time the index has fallen below 50 since January.

Industrial production experienced a significant drop, declining at the fastest rate since May 2020, as demand for goods decreased amidst rising prices.

The PMI service sector also witnessed a slowdown in growth, declining from 54.1 to 52, representing its slowest pace of growth in five months, accompanied by a decrease in new business activity.

Euro weakens in the aftermath

The euro slipped at the open earlier today following disappointing data from both economies, falling back to 1.10 again.

The ECB is due by end of week, with markets largely pricing in a 25 bp hike, to curb inflation which now stands at 5.5%.