Euro drops on dire German Manufacturing data

Key Movers

This morning has seen a woeful Flash German Manufacturing PMI for July released. The reading of 38.8 is way below the 50 level that indicates whether the sector is contracting or expanding and the worst since May 2020 when much of the world was still in Covid-19 lockdown. Dr Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank comments in the report painted a pretty stark picture of the EU's economic powerhouse. He wrote: “Over the last few months, we have seen a jaw dropping fall in both new orders and backlogs of work, which are now declining at their fastest rates since the initial covid wave at the start of 2020. This doesn’t bode well for the rest of the year." He also saw an "increased probability" that the economy would be in recession as we head to Christmas. The readings for the eurozone as a whole all missed forecast with the bloc's manufacturing print falling 42.7 while the services slipped to 51.1. All this has translated into a weaker euro with EUR/USD dropping from 1.1150 to 1.1080.

This week’s main events are the interest rate decisions from the US Federal Reserve on Wednesday night and the European Central Bank on Thursday lunchtime. Both banks are predicted to raise rates by 0.25% however it will be the messaging from Fed Chair, Jay Powell and ECB President, Christine Lagarde about future moves that will draw most attention.