European session review: EUR mixed, following slew of economic data from Eurozone

EUR traded mixed against other major currencies in the European session on Wednesday, as investors assessed the latest reports on Eurozone’s manufacturing PMI and unemployment rate for July.

The single European currency rose against JPY, and CHF, declined against CAD, AUD and NZD, and changed little against USD and GBP.

The latest report by IHS Markit revealed that the growth in Eurozone’s manufacturing activity decelerated slightly more than initially estimated in August. IHS Markit’s seasonally adjusted final Eurozone Manufacturing PMI came in at 61.4 in August, being fractionally lower than the earlier “flash” reading of 61.5 and down from 62.8 in July. This was the lowest reading since February and marked the second consecutive month, in which growth has slowed since June’s survey-record expansion. Economists had forecast the index to stay unrevised at 61.5.

Eurostat announced the unemployment rate in the euro area dropped to 7.6 percent in July from an upwardly revised 7.8 percent in June. That was the lowest rate since May 2020 and in line with economists’ forecast.

In addition, investors had to contend with disappointing July retail sales data out of Germany, the region’s largest economy. Destatis reported that Germany's retail sales plunged by 5.1 percent m/m in July, following an upwardly revised 4.5 percent m/m surge in June . This represented the first monthly drop in retail sales in the last three months and was much worse than economists' forecast for a 0.9 percent m/m drop.

Market participants also digested the remarks of the ECB’s vice president Luis de Guindos, who reiterated his view that the surge in the Eurozone’s inflation is largely transient. Eurozone’s CPI climbed 3% in August, well above the ECB's 2% target, and de Guindos forecast a further rise before a decline in 2022. He also added that the bank’s future policy decisions will depend on how the economy and inflation develop. "If inflation and the economy recover, then there will logically be a gradual normalisation of monetary policy, and of fiscal policy, too," de Guindos noted. He also said that the ECB will publish revised projections in the coming days, which will reflect the better-than-expected performance of the economy in 2021.