EUR/USD price declines as Eurozone PMIs unexpectedly contract in May
EUR/USD slides to 1.13 after weak PMI data
EUR/USD fell to near $1.13 today following the release of weaker-than-expected Eurozone PMI data for May. The flash Eurozone Purchasing Managers' Index (PMI) came in at 49.5, down from 50.4 in April, signaling contraction in the region’s private sector. This unexpected drop in business activity weighed on the euro (EUR), while the U.S. dollar (USD) managed to gain strength, despite ongoing concerns about the growing U.S. debt burden.
Highlights
– EUR/USD slides to 1.13 as Eurozone PMI data shows unexpected contraction.
– Euro (EUR) underperforms against most G10 currencies following weak PMI data.
– ECB messaging remains dovish, with traders eyeing potential rate cuts.
The euro has struggled to maintain its momentum, with economic indicators pointing to a renewed contraction in the Eurozone. The decline in the PMI is the steepest in six months and primarily reflects a drop in services activity. While Germany’s Ifo Business Climate Index rose slightly to 87.5 in May, easing some uncertainty, the broader trend is still bearish. These mixed economic signals add to market concerns about the ECB’s dovish stance, which is expected to lead to further monetary easing.
EUR/USD price dynamics (April 2025 - May 2025) Source: TradingView.
Economic concerns weigh on EUR/USD outlook
Despite the European Central Bank (ECB) sending a dovish message, market participants are hopeful that the U.S. and the EU will eventually finalize a trade deal. In recent comments, the ECB’s Nagel expressed hope for a trade agreement between the two economic powers. However, the ongoing lack of clarity on the EU-U.S. trade talks, coupled with the weakness in the Eurozone, is putting pressure on the euro, making it underperform against most other G10 currencies.
On the U.S. side, the dollar has benefitted from the market’s focus on President Trump’s new tax bill, which could exacerbate the country’s budget deficit, pushing the U.S. dollar further into the spotlight. Even as the euro weakens, the dollar’s growth remains tied to a wider economic outlook.
Short-term outlook for EUR/USD
Looking ahead, the outlook for EUR/USD remains uncertain. If the euro fails to gain support above 1.13, further downside toward 1.12 could become a reality. Traders are closely watching upcoming ECB meetings and any developments regarding the trade talks between the U.S. and the EU, which could provide additional direction for the currency pair. Without significant improvements in Eurozone data, the short-term trend may favor the U.S. dollar, while the euro could remain under pressure.
As discussed in earlier reports, the economic slowdown in the Eurozone continues to weigh heavily on the euro. The latest PMI data confirms that the region’s growth is stagnating, and unless a turnaround in the coming months, we could see further losses for the euro.
