EUR traded flat against most of its major rivals in the European session on Thursday as investors prepared for tomorrow's release of the flash PMI data for the Eurozone’s manufacturing and services sector for January.
Economists expect the preliminary estimates will indicate continuing contraction in the region’s manufacturing activity, with the manufacturing PMI coming in at 45.3 (compared to 45.1 in December 2024) and moderate growth in business activity across the services sector, with services PMI coming in at 51.5 (compared to 51.6 in December).
It is anticipated that disappointing PMI readings could drive the European Central Bank to disregard the recent resurgence in the euro area’s inflation and lower interest rates by more than 100 basis points this year.
Latest comments from the ECB’s policymakers, including its president Christine Lagarde, sent a clear message that they intend to continue policy easing in the coming months despite a temporary acceleration of inflation.
Currently, markets fully price in a 25-basis-point rate cut at the ECB’s January 29-30 meeting, and see a high probability of a similar move in March.