Fundamental Comment

Euro strengthens as eurozone economic slump eases

Euro strengthens as eurozone economic slump eases

The euro managed to recover significantly during trading today’s trading session, set for ad second straight daily gain, recording its highest level in nearly a week against the dollar, after data that showed the contraction of the euro zone economy eased this month.

At 08:49 GMT, the EUR/USD pair traded at 1.1283 after it opened today at 1.1252, where it recorded the highest level in a week at 1.1305.

Eurozone flash purchasing managers index figures, measuring the performance of the manufacturing and the services sectors, showed an ease in contraction, in light of the return of countries to ease the pandemic closure procedures.

The governments in Europe have eased the procedures for closures and social distancing, although new cases of the coronavirus, which infected 9 million people worldwide and have caused half a million deaths, are still recorded.

The composite PMI from the manufacturing and service sectors for the euro area during June, which is a good measure of the health of the economy, recovered to the level of 47.5 after a reading of 31.9 in May, while it had recorded a historic low in April of 13.6.

It is worth noting that reading the index above 50 indicates growth in the sector, while reading below 50 indicates contraction.

Expectations indicate that the gross domestic product in the euro area is on track to record an unprecedented recession during the second quarter of the year, but improved PMI readings signaled that lifting restrictions by European countries will help end the economic downturn during the second half of the year.

The Eurozone factory PMI hit 46.9 in June from 39.4 in May, while expectations were at 43.8. The services gauge recorded 47.3 from a previous of 30.5, compared to expectations of 40.5.

In Germany, the economic sectors are still in contraction, as the manufacturing PMI index recorded 44.6 in June from the previous reading of 36.6, while the service index registered 45.8 from the previous reading 32.6.  

The French economy showed stronger data as the index was able to return to the growth zone above the 50 level, where the manufacturing index climbed to 52.1 from 40.6 and the service sector soared to 50.3 from 31.1.

The upbeat PMI data succeeded in adding more positivity to the sentiment after President Trump quelled fears about the trade relation with China as he tweeted: “The China Trade Deal is fully intact. Hopefully they will continue to live up to the terms of the Agreement!

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