Euro Losses On Soft PMI Data May Be Offset By ECB Meeting Minutes
Dailyfx | May 21, 2015 05:20AM ET
Talking Points:
- Euro May Look Past Soft PMIs as ECB Minutes Dent Stimulus Expansion Bets
- US Dollar Corrects Lower as FOMC Minutes Fail to Boost Rate Hike Outlook
May’s preliminary set of Eurozone PMI figures headlines the data docket in European trading hours. The region-wide Composite measure is expected to print at 53.9, implying the pace of manufacturing- and service-sector activity growth held steady compared with the prior month. News-flow out of the currency bloc has increasingly underperformed relative to consensus forecasts over recent weeks however, opening the door for a downside surprise.
The implications of a soft number for the euro seem uncertain. Investors seemed to interpret comments from ECB Governing Council member Benoit Coeure – who said the central bank will “front-load” its QE asset purchases earlier in the week – to mean the central bank is ramping up stimulus. A close look at Mr Coeure’s remarks suggests he was describing a temporary adjustment in implementing the existing effort – buying a bit more in May and June to account for liquidity conditions in July and August while sticking to an averaging of €60 billion/month – rather than an expansion.
If the market continues to see the size of ECB QE as flexible and potentially due to be expanded in the near term, a soft set of PMI figures may reinforce the narrative and weigh on the single currency. Follow-through may prove short-lived however if minutes from April’s ECB policy meeting serve to clarify that policymakers are not looking to expand accommodation for the time being, triggering a Euro rebound as prices begin to reverse losses sustained earlier in the week.
The US dollar underperformed in overnight trade, falling as much as 0.2 percent on average against its leading counterparts. The pullback seemed corrective after four days of recovery after minutes from April’s FOMC policy meeting failed to meaningfully advance the case for an up-shift in interest rate hike expectations. Indeed, Fed Funds futures contracts actually revealed a slight outward shift in the priced-in timeline for the onset of tightening.
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