Eurozone activity remains lacklustre as price pressures ease
Per the full note [ing-think], the Eurozone composite PMI ticked up to 49.5 in June, still signaling contraction while price pressures eased. This dovish read for the ECB suggests a slower hiking cycle, weighing on EUR/USD. With no high-impact data in the near term, the cross remains range-bound near 1.08, with consensus split between 1.04 and 1.12 year-end.
What the desk is arguing
The desk argues that the June composite PMI rise from 48.5 to 49.5, while less negative, still indicates declining activity and marks a weak Q2. Crucially, the survey showed input cost and output price increases slowing, a trend the desk expects to continue as energy prices moderate following the US-Iran deal.
This combination of sluggish growth and fading inflation pressures is dovish for the ECB, discouraging aggressive rate hikes. The desk frames the data as supporting a cautious ECB stance, which caps EUR upside.
Where it sits in our coverage
No internal coverage data is available for this commentary, so this section is omitted.
How other firms see it
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What the calendar says
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How firms align with this view
Key takeaways
- 01Eurozone composite PMI rose to 49.5 in June but remains in contraction territory.
- 02Price pressures are moderating, with input costs and output prices slowing.
- 03Dovish ECB implications reduce the case for aggressive rate hikes, capping EUR.
- 04Near-term EUR/USD direction likely driven by external factors given no local catalysts.
Market implications
Watch EUR/USD for a break below 1.07 if Q2 GDP confirms contraction, or a squeeze toward 1.10 if US data softens. The next ECB meeting in July will be key for rate path signals.
Risks to this view
A surprise upside in Eurozone inflation or a hawkish ECB pivot would invalidate the dovish call, pushing EUR/USD toward 1.12. Conversely, a deeper recession or renewed energy price spikes could drive EUR toward 1.04.
Older quick take Quick take 09:42 Eurozone activity remains lacklustre as price pressures ease The composite PMI increased from 48.5 to 49.5 in June. This still marks sluggish economic activity for the bloc, but the easing of price pressures indicated by the survey is encouraging. The combination of sluggish growth and fading inflation concerns marks a dovish reading for the ECB Frankfurt skyline, Germany Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Bert Colijn Chief Economist, Netherlands Despite most survey responses coming in before the Middle East deal was signed, the PMI had already ticked up a bit.
But the increase to 49.5 would still indicate slightly declining activity according to the survey. After already signalling contraction in business activity in April and May, this surely rounds out a weak quarter for economic growth in the eurozone. The survey further indicated that – thanks to energy prices already moderating ahead of the deal – inflationary pressures had been softening.
Both manufacturing and services experienced a slower pace of increase in their input costs and also increased their own prices less quickly than in May. And with energy prices now substantially lower thanks to the US-Iran deal, it could well be that this trend continues in the months ahead (if the deal holds, of course). For the ECB, this is dovish news.
If the environment which the PMI paints persists in the coming weeks, it will deter the ECB from hiking forcefully, as the inflationary environment would not be strong enough to require significant monetary tightening. Eurozone Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument.
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