The euro gained ground on Thursday, with EUR/USD trading near 1.1610 after stronger-than-expected Eurozone PMI figures signaled improving economic momentum in October. According to analysts at Brown Brothers Harriman (BBH), the rebound was led by the services sector and robust performance in Germany.
Eurozone activity accelerates in October
The composite PMI for the Eurozone rose sharply to a 17-month high of 52.2 in October, well above market expectations of 51.1 and up from 51.2 in September. The services PMI climbed to a 14-month high of 52.6 (consensus: 51.2), while the manufacturing PMI improved modestly to 50.0 from 49.8, matching consensus forecasts.
Germany led the region’s expansion, with its composite PMI jumping to a 29-month high of 53.8 (consensus: 51.5) compared with 52.0 in September—driven by the strongest increase in services activity in more than two years. In contrast, France’s composite PMI slumped to an eight-month low of 46.8 (consensus: 48.4) from 48.1 in September, signaling ongoing contraction in business activity.
ECB outlook stabilizes as Fed bias turns dovish
The swaps market continues to price in roughly 50% odds of one final 25-basis-point rate cut from the European Central Bank (ECB) within the next 12 months, implying a terminal policy rate near 1.75%. However, BBH analysts believe the ECB has likely concluded its easing cycle.
“We think the ECB is done easing, while the risk is that the Fed cuts rates more than is currently priced in—about 117 basis points over the next 12 months,” BBH said. “The relative policy stance between the ECB and the Fed continues to support the uptrend in EUR/USD.”
