European session review: EUR strengthens as poor PMI data are not enough to outweigh investors' optimism over EU joint recovery fund

EUR rose against other major currencies in the European session on Thursday as weak Eurozone PMI data, which again revealed the devastating impact of the COVID-19 pandemic on the region’s economy, were not enough to outweigh investors' cheer over the EU recovery fund plan.

IHS Markit reported that its latest survey revealed the Eurozone's private sector remained stuck in its deepest downturn ever in May due to ongoing measures taken amid Covid-19 pandemic. However, the rate of contraction eased as parts of the economy started to emerge from lockdowns. The flash IHS Markit Eurozone Composite PMI increased from an all-time low of 13.6 in April to 30.5 in May, its highest since February. The service sector business activity index picked up from 12.0 in April to 28.7 this month, its highest since February, while manufacturing output index rose from 33.4 in April to 39.5, its two-month high. Nonetheless, all three indicators remained well below the 50.0 no-change level, indicating a rapid rate of decline.

On Monday, the leaders of France and Germany, Emmanuel Macron and Angela Merkel, proposed the creation of a EUR500 billion recovery fund "to support a sustainable recovery that restores and strengthens growth in the European Union". According to a joint statement of German Chancellor and French President, the fund is meant to be "ambitious, temporary and targeted" financed by money borrowed by the European Commission (EC) on capital markets "on behalf of the European Union" with guarantees from the Member States on favorable terms. The money would be distributed in the coming years as "budgetary expenditure" to the Member States and "the sectors and regions most affected". The EC's chief Ursula von der Leyen welcomed the proposal, which she said "acknowledges the scope and the size of the economic challenge that Europe faces". The EC is to present its proposal for the recovery fund next week.