The EUR/USD currency pair has lost momentum, slipping to the 1.0400 area as investors brace for upcoming US data releases. Earlier in the day, the pair had shown strong gains following positive data from the UK, but it now trades below 1.2500. This shift in momentum reflects broader economic challenges within the Eurozone, highlighted by a 1.1% decline in industrial production in December compared to November.
The December production downturn was primarily driven by declines in intermediate and capital goods sectors, contributing to a year-end slump for the Eurozone industry. Despite an increase in consumer goods and energy production during the same period, significant downturns in Germany and Italy exacerbated the overall decline. The drop exceeded market expectations, marking a continuation of the recessionary trend that has plagued the industry for nearly two years.
On Thursday, the EUR/USD consolidated below the $100,000 level, erasing less than 2% of its value. The US Dollar's rebound, following US President Donald Trump's hints at potential reciprocal tariffs, added pressure on the pair. The specter of a trade war adds to existing uncertainties within the manufacturing sector, which recorded a slight improvement in the Purchasing Managers' Index (PMI) in January. However, with an output index reading of 47.1 indicating contraction, the challenges remain substantial.
The industry faces an uphill battle with rising energy prices impacting energy-intensive sectors across Europe. Looking forward, industry leaders are calling for further inventory reductions, lower interest rates, and stronger domestic consumption to potentially stabilize the sector in the latter half of the year. Expectations for support leading to stronger production remain subdued amid ongoing uncertainties.