Strong PMI Supports European Currencies As Risk Aversion Sets in Motion

The yen and Swiss franc are trading at their strongest to date as equity markets weaken on escalating tensions between the US and China.

Although negative sentiment in Europe was partially offset by much stronger than expected PMIs in the Eurozone and the UK.

There are signs of V recovery, although the development will largely depend on the second wave of coronavirus infections. Both the euro and sterling are stable today. On the other hand, the Australian dollar outperforms other commodity currencies as the worst productive.

Eurozone PMI Rises to 54.8, a 25-Month High, Indications of Initial V Recovery
The Eurozone Manufacturing PMI rose to 51.1 in July from 47.4, a 19-month high. PMI Services rose to 55.1 from 48.3, a 25-month high.

The Composite PMI rose to 54.8 from 48.5, a 25-month high.

Chris Williamson, Chief Business Economist at IHS Markit, said: “Companies across the eurozone reported an encouraging start to the third quarter, with production growing at its fastest pace for just over two years in July as locks continued to abate and the economy resumed.

However, while the research output indicates an initial V-shaped recovery, other indicators such as backlog and employment warn of negative risks to the outlook. The concern is that recovery may stall after this initial recovery.

Manufacturing PMI in Germany rose to 50.0 in July from 45.2, better than expected at 48.3. The service business activity index rose to 56.7 from 47.3, hitting a 30-month high. The Composite PMI rose to 55.5 from 47.0, a 23-month high. This is also the first expansionist reading since February.

Manufacturing PMI in France rose to 52.0 in June, down from 52.3, failing expectations of 53.2. The services PMI rose to 57.8 from 50.7, well beyond expectations of 52.3. This is also the highest level in 30 months. The Composite PMI rose to 57.6 from 51.7, also hitting a 30-month high.