The rate of EUR to USD made another leg higher today, moving above 1.07 as US manufacturing and services PMI numbers came in weak, missing expectations, with manufacturing activity dipping in in contraction again. The markets have been fearing a soft economic report from the US and they got it today, but it doesn’t change much for the FED really.

March US Services and Manufacturing Surveys from S&P Global

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• S&P Global services PMI for March 50.9 points vs 52.0 points expected
• Prior was 51.7 points
• Manufacturing 49.9 points vs 52.0 points expected
• Prior manufacturing reading 51.9 points
• Composite PMI 50.9 points vs 52.1 points prior
• April saw an overall reduction in new orders for the first time in six months
• Companies responded by scaling back employment for the first time in almost four years
• business confidence fell to the lowest since last November
• Rates of inflation generally eased at the start of the second quarter, with both input costs and output prices rising less quickly at the composite level
• However manufacturing input cost inflation hit a one-year high
• Some service providers suggested that elevated interest rates and high prices had restricted demand during the month

From Chris Williamson, Chief Business Economist at S&P Global Market Intelligence:

“The flash PMI survey data for April revealed that the US economy was beginning to slow down at the start of the second quarter. During this period, businesses reported below-average growth in activity, and there are worries that this pattern may persist in the upcoming months. Due to growing uncertainty about the economic outlook, businesses’ estimates for future output dropped to a five-month low in April, and new business inflows fell for the first time in six months.

With the exception of the initial months of the pandemic lockdown, corporations decreased their personnel at a rate not seen since the global financial crisis due to the difficult business environment. Due to the decline in demand and the contraction of the labour market, pricing pressures subsided in April, with reduced rates of price rises for both commodities and services. Interestingly, the forces driving inflation have changed, with price rises in manufacturing now outpacing those in services. As a result of rising fuel and raw material costs, factory cost pressures grew in April 2023, in contrast to wage-related pricing pressures observed in the services sector for most of 2023.”

EUR/USD Chart H4 – The 50 SMA Has Been Broken

The decline in the US dollar in relation to the Euro can be attributed to the narrative outlined in the PMI survey results, which serve as a forward-looking indicator of economic activity. The survey’s indication of a potential slowdown in the US economy aligns with recent discussions about a possible moderation in economic growth during the spring.

The fact that the Federal Reserve may not need to implement further rate hikes to address inflation or economic activity, as suggested by the last line of the survey commentary, likely contributed to the weakening of the US dollar.

EUR/USD Live Chart