Euro eases within range as Eurozone business activity disappoints

• EUR/USD pulls back below 1.1620, from session highs at 1.1635.
• Eurozone services sector's activity fell to its lowest level in more than 5 years in May, according to the HCOB PMI.
• Hopes of a peace deal in Iran are holding down the USD and keeping the Euro afloat.

The Euro (EUR) trades marginally lower against the US Dollar (USD) on Thursday, yet within the last few days’ range, changing hands at 1.1615 at the time of writing. Downbeat Eurozone business activity data has failed to support the pair, but moderate hopes of a peace deal in Iran are keeping US Dollar bulls in check for now.

Preliminary HCOB Purchasing Managers Index (PMI) figures for May revealed that the Eurozone service sector activity fell to a 63-month low of 46.4 from 47.6 in April, against expectations of an uptick to 47.7. Manufacturing activity slowed down to 51.4 in May, from 52.2 in April, also below the 51.9 expected.

In France, the Composite PMI fell to a 66-month low at 43.5, from 47.6 in April. The Manufacturing PMI slumped to 48.9 from 52.8 in April, with the services sector accelerating its contraction, to 42,9 from 46.5 in the previous month. German PMI figures were also negative, with both the manufacturing and services sectors contracting. 

PMI data poses a challenge to the ECB

These figures confirm the negative impact of the energy shock on the Eurozone economy and hint at sluggish Gross Domestic Product growth in the second quarter of the year. The data is also likely to pose a headache to the European Central Bank (ECB), which will face a challenge to set its monetary policy in a context of high inflation and weakening economic activity.

The US, on the other hand, has halted its rally, as US President Donald Trump affirmed on Wednesday that Washington and Tehran are in the final stages of peace negotiations, triggering a moderate optimism. This has partially offset the positive US Dollar impact of the hawkish-leaning minutes of April’s Federal Reserve (Fed) meeting.

Later on the day, the US preliminary S&P Global PMIs for May are also expected to show a slight slowdown in manufacturing activity, although, in this case, both sectors are expected to show healthy growth rates.