May flash PMIs show Eurozone manufacturing and services slipping further into contraction, pressuring the ECB amid fragile USD support.
The Euro held near unchanged levels Thursday despite May flash Purchasing Managers Index data revealing deeper contraction in both manufacturing and services. The Composite PMI fell further below the 50 mark, signaling worsening economic activity, while services hit one of its weakest readings in months. Only a marginal uptick in consumer confidence provided any relief, offering little counterbalance to the broader downturn.
The Euro’s stability stemmed not from its own strength but from a temporary pullback in the Dollar. Risk sentiment surged briefly on unverified reports of an imminent US-Iran ceasefire, dragging the greenback off session highs. However, the optimism faded as negotiations stalled over key sticking points, including Iran’s demands on Strait of Hormuz tolls and nuclear material restrictions. The Dollar’s wobble may prove short-lived, leaving the Euro vulnerable.
With economic data deteriorating, the European Central Bank faces mounting pressure to address weakening growth. Policymakers have so far emphasized resilience, but the latest PMI figures suggest limited room for continued optimism. The services sector’s contraction, in particular, raises concerns about the Eurozone’s near-term outlook.