As of March, the Eurozone manufacturing sector had made a concerted effort to start slowing down its contraction. That cheery development was underscored in the most recent HCOB Purchasing Managers’ Index (PMI) Survey published Monday. Supply constraints endemic to the pandemic saw the Manufacturing PMI jump to 48.7, beating expectations of 48, indicating a turnaround in the sector. The news was not as positive when it came to the Eurozone services sector, where activity fell to 50.4, under the expected 51. This growing rift between the manufacturing and service sectors hasn’t gone unnoticed by market participants.
Today, the report lifted overall global risk sentiment. We learned that the reciprocal tariffs, a tropical Trumpian surprise package courtesy of former U.S. President Donald Trump, will be much narrower in scope and less severe than we had feared. This variation provided a bit of respite to trade sentiment and economic expectations. In the UK, focus has recently turned to the budget and the Consumer Price Index (CPI). This amendment follows the Bank of England (BoE) hawkish surprise action.
Currency markets on Monday morning responded to all these changes. Unsurprisingly, the GBP/USD pair has continued to build positive traction, trading back towards the 1.2950 level in the European session. Gold prices remained depressed in early trading. This volatility was indicative of the jittery market mood as investors looked ahead to critical inflation data and central bank officials’ keynotes.
The UK and US PMIs were particularly eagerly awaited as market participants looked for more clues about the pace of underlying economic activity. BoE Governor Andrew Bailey’s highly anticipated speech is just days away. Investors are looking forward to it, expecting to glimpse signals about the future direction of monetary policy. This disconnect in approach by the Federal Reserve and the Bank of England has resulted in very attractive buyer-friendly conditions. These recent price movements breaking above the 200-day SMA add confirmation to this bullish development.
On the Euro crosses, in the Eurozone as expected, the EUR/USD held firm near 1.0850 post German and Eurozone PMI releases. The HCOB Eurozone PMI Composite for March came in at 50.4, reflecting a divergent performance between the manufacturing and services sectors.