Forex Flash: Euro undermined by weaker PMIs - BTMU

FXstreet.com (Barcelona) - Lee Hardman, FX Strategist at the Bank of Tokyo Mitsubishi UFJ notes that the euro has also been undermined by the release yesterday of the much weaker than expected euro-zone PMI surveys for March.

He notes that business confidence in both the service and manufacturing sectors unexpectedly deteriorated further in March, declining to 46.5 and by 46.6 respectively signalling that the pace of economic contraction in the Eurozone likely accelerated heading into Q2. He adds that Markit stated the PMI readings for Q1 as a whole were consistent with economic activity in the euro-zone contracting by around -0.3%.

However, he writes, “The biggest surprise in the March readings was the drop in business confidence in Germany dampening hopes that the German economy will help lift the rest of the Eurozone out of recession. The drop in the German manufacturing PMI in March back below the 50.0-level highlights that there are downside risks to consensus expectations for today’s IFO report to show a modest improvement in business confidence. The increasing likelihood of a more prolonged euro-zone recession supports our view that the ECB may ease monetary policy further later this year helping to lower the euro.”