Euro Dips as German PMI Surprise Weighs on EUR/USD

Key Moments

Euro Softens After German PMI Release

EUR/USD was little changed during Tuesday’s European session, hovering near 1.1430 after posting modest declines in the prior trading day. The currency pair initially attempted to extend its recovery but surrendered its daily gains following the publication of the latest HCOB Purchasing Managers Index (PMI) readings from Germany.

Market participants are now expected to turn their focus to Eurozone PMI data scheduled for release later in the day, which could provide additional direction for the common currency.

German PMI Signals Mixed Sector Trends

Preliminary June figures from Germany showed that the HCOB Manufacturing PMI came in at 50.0, exactly in line with consensus and just below May’s 50.1. The reading kept the gauge at the threshold that separates expansion from contraction, indicating no overall change in manufacturing activity compared with the previous month.

By contrast, services sector data disappointed. The HCOB Services PMI declined to 46.8 from 48.1 in May, undershooting the market’s 48.7 forecast. The drop pointed to a deeper contraction in Germany’s services activity and added pressure to the euro following the release.

Fed Hawkishness Supports US Dollar

The upside for EUR/USD appears constrained as the US dollar remains underpinned by expectations that the Federal Reserve will maintain a hawkish policy stance for longer. The Federal Open Market Committee (FOMC) Economic Projections report released last week indicated that nine of the 19 policymakers anticipate a rate increase in 2026.

Hawkish sentiment strengthened further after Kevin Warsh, in his first meeting as Fed Chair, surprised markets with a substantially more aggressive policy tone than many had anticipated.

According to current market pricing, reflected in the CME FedWatch tool, there is an 85% probability of at least a 25-basis-point rate hike before the end of the year. Investors are now closely monitoring Thursday’s publication of the May Personal Consumption Expenditure (PCE) Price Index, the Federal Reserve’s preferred inflation gauge, for signals on the likely path of US monetary policy.

German Manufacturing PMI at a Glance

The HCOB Manufacturing Purchasing Managers Index is compiled monthly by S&P Global and Hamburg Commercial Bank (HCOB) and serves as a key forward-looking indicator for business conditions in Germany’s manufacturing sector.

The survey is based on responses from senior executives at private-sector manufacturing companies, who are asked to compare current conditions with the previous month. Their responses can foreshadow shifts in official data such as Gross Domestic Product, industrial production, employment, and inflation. As Germany is a major manufacturing center in Europe, the PMI is also watched as a barometer of the broader regional manufacturing landscape.

The index ranges from 0 to 100, with a reading of 50.0 indicating no change in activity versus the prior month. Values above 50 point to expanding manufacturing activity and are typically interpreted as supportive for the Euro, while readings below 50 signal contraction, which is generally considered negative for the currency.