EUR/USD to recover from drop following weaker Eurozone PMIs – MUFG

The drop in EUR/USD by close to 1% on Friday highlighted the greater FX sensitivity to incoming economic data that increasingly influence short-term rate expectations.  Economists at MUFG Bank analyze the pair’s outlook.

Incoming data increasingly dictate FX moves

We suspect that incoming economic data will increasingly dictate FX moves now that we are approaching the end of tightening cycles. In that context, the PCE inflation, ISM, NFP and CPI data from the US in the coming weeks will determine whether this EUR/USD drop extends further or recovers. 

Other data suggests weak data is plausible allowing the FOMC to maintain its pause, which would imply an end to the Fed’s tightening cycle – a much more important development than last Friday’s PMI data.