The eurozone economic activity picks up, with fast growth in manufacturing activity and a slowing unemployment rate to pull EUR/USD to 1.18 levels.
EUR/USD at 1.1862 with Manufacturing Upturn
The EUR/USD currency pair touched a high of 1.22 levels on June 9. But the currency pair closed at 1.1862 for the weekend on June 18, 2021.
The US dollar index closed at 92.32 for the weekend ended June 18. The greenback slipped to 89.50 levels but bounced higher to two-month highs. The dollar index has moved above the 200-day SMA as the FOMC revealed its hawkish outlook.
Factory production has grown in Germany, France, Italy, and France, accompanied by production growth. The eurozone region shows overall growth, but supply bottlenecks hamper recovery.
The HIS Markit Manufacturing PMI for the eurozone was 63.1 in May 2021, above the April figure at 62.9. Factory activity shows record growth.
The euro area unemployment rate has come down 8.1% in March to 8.0% in April 2021. In April 2020, the unemployment rate was at 7.3%. The youth unemployment rate was at 17.1% in April 2021 in the European Union.
Despite rising Covid-19 infection rates, industrial production has grown 0.5% in April 2021. Production of energy and durable consumer goods has increased. It has increased 0.8% from 0.4%. The trade balance has come down from 18.3 billion to 9.4 billion. Final Core CPI year-on-year has gone higher from 0.9% to 1.0%.
Eurozone retail sales were at 3.1% in April 2021, lower from 3.3% growth in March. Online trade has gone down along with food sales. France shows the highest monthly decline. The country has slowed down marginally though production activity has increased. France’s sales has contracted by 6.0%. In Germany, sales have gone down 5.5%, and in Spain, it has come down -0.9%.
President Christine Lagarde prefers to maintain financial conditions so that economy may show a higher recovery. Inflation is at 2% in the eurozone, above the targeted level. The European Union takes steps to bring improved activity to the country as GDP is at 4.3%.
Experts say that the central bank will put off tapering in bond-buying. The furlough scheme has kept companies afloat and provided employment opportunities. The 800 billion euro fund has helped the economy show long-term resilience. Critics say that inflation risk will increase despite extended stimulus.
French manufacturing activity shows the highest expansion in May, not seen in two decades. The IHS Markit final purchasing managers index has come from 58.9 in April to 59.4 in May, the highest level since September 2000. After the third lockdown, the nation slowly ramps up manufacturing activity. Supply-chain delays and material unavailability hamper fast growth in France.
The French trade balance has gone down -6.2B from the previous figure at -6.1B, as imports are growing more than exports.
IHS Markit Italy Manufacturing PMI shows marked improvement above market expectation of 62. In May 2021, it was at 62.2, while in April, it was at 60.7. New orders and employment has climbed higher with strong output growth.
Italian retail sales m/m has come down from 0.0% to -0.4%
IHS Markit Spain Manufacturing Purchasing Managers Index (PMI) is at 59.4 in May 2021, while it was 57.7 in April. It is the fourth month of continuous growth in factory activity. New orders and exports have increased, with surging demand. Retail sales have gone up 23.9% in April.
German Final Manufacturing PMI is at 64.4 in May 2021, while it was 64.0 in the previous month. There is strong factory activity through supply chain disruptions that have also increased. German industrial production month on month has come down -1% from 2.2% the previous month.
The eurozone shows a revival in activity as flash numbers signal a quick rise in business activity. Business optimism has grown Strong output in Germany comes from growing manufacturing activity. Increasing demand in France shows a sharp reversal from the pandemic downturn. Increasing demand in all sectors has brought inflationary pressure.
In Germany, the unemployment change has come down from 4.5% in March 2021 to 4.4% in April. It is the lowest rate since last July. The economic activity has picked up in Germany, and the number of unemployed declined.
Two big economies in the eurozone, Germany, and France, show high growth with new orders and production.
Greenback Gathers Steam
The US dollar index is at 92.00, which has pushed the EUR/USD lower. The greenback has strengthened along with bond yields.
The US dollar has strengthened along with a higher US Treasury yield. The yield on the 10-year Treasury note fell to 1.44%. Fed Chairman Jerome Powell considers reducing asset purchases from $120 billion per month. The immunization drive is helping the economy come back to normal. Biden supports the $6 trillion plan for families and infrastructure.