The Euro US Dollar (EUR USD) exchange rate continued to trend flatly this morning as the latest Eurozone PMI figures showed a slight slowdown in the services sector.
Euro (EUR) Subdued as Services PMI Slips
The Euro struggled to advance against the US Dollar this morning following the release of the latest Eurozone Services PMI.
According to data compiled by IHS Markit, growth in the Eurozone service sector slowed slightly last month, with the index slipping from 56.3 to 55.4, although still beating market expectations it would fall as far as 54.7.
Growth appeared to moderate across the Eurozone, with the big three economic powers of Germany, France and Italy all reporting a slight drop in activity.
However despite this the accompanying report still painted the sector in a positive light, with a rise in new orders and consistent levels of job creation mitigating any fears that the sector may be cooling off.
Chris Williamson, Chief Business Economist at IHS Markit said,
‘The dip in the PMI in June certainly doesn’t look like the start of a slowdown. Growth of new orders accelerated very slightly to reach the second highest in just over six years, and companies are struggling to satisfy this increase in demand.’
The slight decline also did not stop the sector from reporting its best quarter since 2011 and continued to bolster confidence that the Eurozone recovery still has legs.
US Dollar Weakened as North Korea Tensions Flare Once Again
The US Dollar began to relinquish some of its recent gains overnight on Tuesday as the recent launch of yet another ballistic missile by North Korea led to renewed geopolitical tensions.
The latest missile test took place overnight on Monday, with Pyongyang claiming that its new intercontinental ballistic missile (ICBM) had the range to reach Alaska, with Kim Jong-un reported saying it was a ‘gift’ to the Americans on independence day.
US Secretary of State Rex Tillerson branded the latest test as an ‘escalation of the threat’ to the US and the world as a whole and warned that Washington ‘will never accept a nuclear-armed North Korea’.
North Korea’s increasingly threatening rhetoric and regular missile tests have become an increasing source of tension between the US and Pyongyang’s main ally China, with Trump pushing Beijing to do more to rein in its belligerent neighbour.
Markets fear that the spat could quickly escalate into a major rift in the region, with the possibility of increasingly strained ties between the US and China possibly having a major impact on both economies, especially if trade relations are disrupted.
EUR USD Forecast: US PMI Flash Ahead
Looking ahead the EUR USD exchange rate may stumble on Thursday with the release of the minutes from European Central Bank’s (ECB) latest monetary policy meeting.
The Bank sent mixed messages last week, with central bank officials attempting play down speculation that the bank was looking to wind down its expansive stimulus programme following an unusually hawkish speech from ECB President Mario Draghi.
This will make the June meeting’s minutes all the more important as investors hope they will help clear up the bank’s policy outlook, with any indication that the bank is likely to leave interest rates unchanged for the foreseeable future likely to weigh on the Euro.
Meanwhile the Federal Reserve will also release the minutes from its latest policy meeting later this evening, with the US Dollar likely to strengthen if it confirms that the central bank is still targeting another rate hike later in the year.
Current Interbank Exchange Rates
At the time of writing the EUR USD exchange rate was trending around 1.1341 and the USD EUR exchange rate was trending around 0.8814.
