Eurozone PMI Preview: Can the EUR Find Stability?
Article published on February 21st, 2025 6:00AM UK Time
With the release of the Eurozone’s February Flash PMIs on Friday, February 21, markets are keenly watching for signals on economic health and inflationary pressures. This data will be critical ahead of the European Central Bank’s (ECB) March 6 meeting, where markets currently price in a 98% probability of a 25bps rate cut.
The euro has been under pressure, with expectations of a total of 80bps in cuts for 2025, and weak economic data could reinforce this dovish outlook. However, if services inflation remains stubbornly high, the ECB may face a more complex policy challenge.
Eurozone Flash PMI: Modest Expansion but Manufacturing Still Struggles
Markets expect a slight improvement in the Composite PMI to 50.5 and Services PMI to 51.5, while manufacturing remains a weak point, forecast to remain in contraction at 47.0.
- The January PMI release highlighted rising service sector costs, particularly wage-driven inflation.
- The ECB has previously noted that short-term fluctuations in inflation are expected, but recovery conditions are in place.
- However, a further slowdown in manufacturing could add pressure for the ECB to cut rates more aggressively.
Given that a rate cut on March 6 is almost fully priced in, the market reaction to the PMI print will likely depend on whether the data supports additional easing beyond what is currently expected.
Market Implications for the Euro
The euro remains fragile, hovering near parity against the dollar, as traders anticipate easing monetary policy. With rate cut expectations at 98% for March, weaker-than-expected PMI figures could reinforce this outlook and weigh further on EUR/USD.
However, an upside surprise in services or composite PMI could lead to a repricing of rate expectations, providing some short-term support for the euro. If markets start questioning whether the ECB will actually deliver the expected 80bps of cuts in 2025, the euro could see a bounce.