European session review: EUR weakens, undermined by softer-than-expected Eurozone PMI figures

EUR decreased against its major rivals in the European session on Friday as investors reacted to softer-than-anticipated Eurozone's purchasing managers' indicators (PMIs ) for December.

S&P Global reported its preliminary estimates showed that contraction in the euro area’s business activity unexpectedly deepened early this month. The Eurozone flash composite PMI dropped to 47.0 in December from November's 47.6. Economists had predicted the indicator to rise to 48.0. The December reading signalled a seventh straight monthly reduction in business activity across the euro area as PMIs for the region’s manufacturing and services sector demonstrated a slump. 

Despite that downturn, however, the European Central Bank’s policymakers continued to reject talks about interest rate reductions. The ECB’s Governing Council member Robert Holzmann said that there were no discussions about rate cuts among the ECB’s rate-setters. He also noted that a majority saw upside risks to inflation. Meanwhile, Madis Muller, another ECB Governing Council member, said that markets’ expectations for a rate cut in the first half of 2024 are a bit optimistic and premature. In addition, their colleague Francois Villeroy de Galhau expressed the view that rate hikes are over but warned that does not mean a quick rate cut.

Yesterday, the ECB’s president Christine Lagarde said the central bank had not discussed rate cuts at all and stressed that the policymakers should absolutely not lower their guard on inflationary pressures.