The euro dropped to daily lows against the US dollar on Monday, following the release of downbeat euro zone PMI data and after an ECB official reiterated that borrowing costs will remain at present record-low levels or even lower for a prolonged period of time.
EUR/USD touched a session low at 1.3763 at 10:19 GMT, after which consolidation followed at 1.3775, losing 0.15% for the day. Support was likely to be received at March 20th low, 1.3750, while resistance was to be met at March 20th, 1.3845.
The market research group Markit Economics reported today that the preliminary manufacturing purchasing managers index (PMI) in the euro zone slowed down to 53.0 in March from a final value of 53.2 a month ago, which however was in line with analysts’ estimates. In addition, the services PMI also slowed down to 52.4 this month, but remained close to February’s final reading of 52.6, which was the strongest since July 2011.
A separate report revealed that the German manufacturing PMI also declined to 53.8 this month from a final reading of 54.8 in February, while analysts expected a smaller decline to 54.5. Also fanning negative sentiment, a gauge of services dropped to 54.0 in March from 55.9 in the prior month. Experts have forecast a smaller decline to 55.5 this month.
However, Markit Economics reported that its French preliminary PMI rose to 51.9 this month from a final reading of 49.7 in February and compared to median analysts’ estimates of 49.7. If confirmed, this will be the fastest pace of expansion in French manufacturing activity since June 2011.
In addition, the French preliminary services PMI jumped to a two-year high of 51.4 this month from a final reading of 47.2 and compared with experts’ forecasts of an increase to 47.5.
ECB Governing Council member Erkki Liikanen reiterated today that slack in the euro area economy means ECB officials will maintain borrowing costs low even as growth improves.
“Owing to the high degree of unutilized capacity, ECB interest rates will remain at present or lower levels for an extended period of time, supporting the economy well into the recovery,” Liikanen, who also heads the Bank of Finland, wrote in an e-mailed report today, cited by Bloomberg. “In addition, the Governing Council stands ready to take further decisive action.”
Meanwhile, manufacturing activity in the United States probably slowed down in March. The preliminary reading of the manufacturing PMI probably was at 56.5 in March, as the final reading was at 57.1 during the preceding month. Values above the key level of 50.0 are indicative of expansion in the sector. Markit Economics is to publish the official reading at 13:45 GMT.
Elsewhere, EUR/GBP touched a session low at 0.8356 at 09:17 GMT, after which consolidation followed at 0.8361, losing 0.06% for the day. Support was likely to be found at March 21st low, 0.8344, while resistance was to be met at March 19th high, 0.8395. On March 18th, the pair touched a three-month high of 0.8400.
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