Euro dips barely after French, German PMI information

The algos were at work when it comes to the reaction to the PMI data in the past half hour. The French numbers saw a strong beat on the services print as seen here. However, it owes to a major caveat of it being a boost in demand from the Paris Olympics. The details were less rosy, with employment conditions falling and output expectations also weakening further.

Then, we got a set of poor readings from Germany as seen here. That puts the business activity further in contraction territory as things are starting to unravel in Q3, following the more resilient showing in the first half of 2024.

EUR/USD caught a spike from the French data initially from 1.1153 to 1.1165 but quickly gave that back. And the pair is now turning lower to 1.1128 after the German data as seen above.

So, what’s next?

Well, any weakness in the euro currently shouldn’t be outsized – especially in EUR/USD. Traders have already more or less fully priced in (~99%) a 25 bps rate cut next month. And the data today pretty much reaffirms that.

Looking out to the remainder of the year, traders are seeing ~67 bps of rate cuts to follow with three meetings left to go. There might be scope to expect consecutive rate cuts from hereon but it would be preferable for the ECB if inflation data also gives them something to work with.

The July report here proves that the road is still bumpy at the moment. However, if the economy weakens further, that’s still an incentive to force the ECB’s hand in the months ahead.