The EURUSD faces selling pressure in Friday’s European trades due to multiple headwinds. The major currency pair declined to a six-week low near 1.0670 as the Euro weakened after downbeat Eurozone preliminary PMI data suggested the economy is losing momentum.
The HCOB PMP report, produced by S&P Global, shows that the Composite PMI unexpectedly declined to 50.8 in June, from the prior release of 52.2, but held above the 50.0 threshold that separates expansion from contraction. Investors expected the Composite PMI to increase to 52.5. The Manufacturing PMI fell further into contraction territory, while the Service PMI continued to suggest expansion, although at a slower pace than the previous month.
“New orders decreased for the first time in four months, feeding through to softer expansions in business activity and employment. Meanwhile, business confidence dipped to the lowest since February,” the report said.
Political uncertainty in France, the Eurozone’s second-largest economy, has been keeping the Euro on the back foot. Investors worry that the formation of Marine Le Pen’s National Rally-led government after legislative elections would trigger financial woes in France. The RN has promised a lower retirement age, energy price cuts, more public spending and “France first” economic policies in its manifesto.
Monetary Policy and Market Reactions
On monetary policy, investors evaluate how many times the European Central Bank will cut interest rates again this year. ECB Governing Council member and President of De Nederlandsche Bank Klaas Knot said on Thursday that he is comfortable with market expectations of one or two more rate cuts this year. The ECB cut interest rates by 25 basis points for the first time in seven years at its June meeting.
