Euro managed to recover by 0.3% this morning against the US dollar and reached the level of 1.09724 at the peak of the gains.
However, it fell slightly against the British pound (EUR/GBP) today and is still trying to consolidate after the losses it incurred over the past two days.
The euro’s gains came with positive readings of service PMIs in addition to a rebound of the Eurozone bond yields.
Today we witnessed the final reading of the HCOB S&P Global services PMIs for the month of December. These readings indicated a continued contraction in service activities in most countries of the region and the region as a whole, but this contraction was less than expected.
In Germany, services activities are once again close to consolidating and stopping contraction with a reading of 49.3, which was slightly higher than expected at 48.4.
While the service sector in Germany is still under more pressure due to high prices, political tension, uncertainty about the future of the economy, in addition to tight credit conditions, according to the survey conducted by S&P Global and HCOB.
These factors, in turn, led to further weakness in the labor market as a result of continued layoffs as a result of weak demand in the sector on the one hand and high wage costs on the other hand, according to the report as well.
On the demand side, the decline in new business continued for the sixth month in a row, with uncertainty regarding the political reality and surrounding geopolitical concerns.
As for France, we witnessed the slowest pace of contraction in services activities since last August, with a reading of 45.7, which is higher compared to expectations of 44.3.
While the services sector in France continued to suffer from weak demand conditions as a result of high prices and a decline in customer outputs, in addition to the impact of the recent floods on some businesses. Meanwhile, business confidence rose to the highest level in four months.
What was noticeable today was that the services sector continued to grow for the fourth month in a row in Spain, at the fastest pace since last July. Where services PMI recorded a reading of 51.5, which was slightly close to expectations. This continued recovery came with further growth in new business, which in turn led to increased employment in the sector, in conjunction with continued positive sentiment about the future of business.
As for the whole Eurozone, services activities recorded the least bad performance since last July, with a reading of 48.8, which was slightly higher than expectations of 48.1. The composite PMI also recorded a reading higher than expectations at 47.6 as well. While demand for goods and services and employment continued to decline. However, confidence in business growth continued to improve and reached the highest level in seven months.
These numbers for today are in line with the survey and data that we witnessed over the past four months, which in turn indicated the continued fragility of the region’s economy. At the same time, we still see negative sentiment continuing to decline significantly over time. This coincides with the economy’s trend towards reducing contraction and the trend towards restoring growth, which does not seem close yet.
While the upward risks of inflation are coming to the fore again with the escalation of military actions in the Middle East and their impact is gradually being transmitted to the Eurozone economies. This, in turn, may encourage the European Central Bank to maintain current high interest rates at their high levels for a longer period than expected, which in turn may put more pressure on services activities (and other activities) and prevent them from regaining growth in the near future.
Not far from the region, the Euro’s losses against the British Pound came with some positive numbers from the United Kingdom today. Services activities grew at the fastest pace in six months, and continued to grow for the fourth month in a row.
S&P Global services PMI came in at 53.4 for December, which was higher than expectations of 52.7. While this growth is due to a recovery in demand, especially in technology and financial services firms, in addition to leisure and hospitality. In contrast, employment remains subdued in the sector due to high wage costs.
In addition, the real estate market witnessed some positive signs today, with mortgage approvals rising for the third month in a row to the highest level since last July at more than 50 thousand approvals, which was higher than expectations of 48.5 thousand.
This continued growth comes despite the weakness in demand in the real estate market and the housing market in particular, in light of the very high mortgage rates that may continue to rise for a long time.
As demand in this market continues to rise, it may continue to enhance the financial health of the economy. Bank of England officials warned of the fragility of this sector and its potential impact on the soundness of the banking system, in the Financial Stability Review report last December.
In the financial sector as well, the net credit granted to consumers recorded growth for the second month in a row by 2 billion pounds last December. The continuing trend in consumer credit growth may reflect a return in consumer sentiment about the future of economic growth.
On the other hand, if these positive figures continue to flow and exceed expectations, they may in turn encourage monetary policy makers to stick to their ongoing talk about keeping current rates at their levels for an extended period. This may come with continued improvement in one of the most fragile sectors, the real estate market.
On the other side of the Atlantic, the euro may be exposed to some pressure today with the expected rise in non-farm employment numbers issued by ADP, which is expected to reach 120 thousand jobs added last December, up from 103 thousand in November.
In bond markets, the rebound in Eurozone bond yields contributed to supporting the region’s currency, despite the bad start to today’s session. The euro was also able to advance today despite the rise in Treasury bond yields at the same time.
After reaching a low this week of 1.975%, the yield on German 10-year bunds rose to around 2.080% after 10:30 am. While bond yields in the rest of the region’s countries also recorded similar performance.