Eurozone Manufacturing PMI: EURUSD ticks up on production growth and easing inflationary pressures

The eurozone manufacturing sector showcased encouraging resilience at the close of the first half of the year. While the headline S&P Global Eurozone Manufacturing PMI ticked down slightly to a four-month low of 51.4 in June (down from 51.6 in May), it remained in expansion territory for the fifth consecutive month. The underlying data reveals a complex sector dynamic: factory production is accelerating, supply chains remain stretched but are showing signs of stabilization and cooling energy costs are providing much-needed relief to manufacturers.

EUR/USD edged higher after inflation readings from France, Germany, and the Eurozone as a whole came in above expectations. However, the pair remains confined to the 1.1380–1.1430 range, with additional volatility catalysts—including Eurozone HICP inflation, the ADP employment report, and the Sintra panel featuring major central bank presidents—due later in the session. Bullish momentum could strengthen if EUR/USD breaks above its key EMAs. At the time of writing, the pair is down 0.15%. Source: xStation5

Sector Dynamics: Production vs. Demand

Despite the slight dip in the headline PMI, actual factory output experienced a notable boost, marking the strongest calendar quarter for euro area manufacturing production since early 2022.

• Accelerating Output: The Manufacturing PMI Output Index rallied to a two-month high of 51.7 (up from 51.3 in May), marking six consecutive months of rising production volumes.
• Geographic Divergence: Production growth was widespread across the euro area, with Spain and France being the only constituent countries failing to register expansions in June.
• Fragile Demand: New orders returned to growth after stagnating in May, though the increase was only marginal. Export demand (which includes intra-eurozone trade) remained a primary drag on the sector, contracting for the second consecutive month.
• Persistent Supply Chain Strains: The Suppliers’ Delivery Times Index rose to a three-month high, signaling a slight alleviation of logistical pressures. However, vendor capacity remains severely stretched, with delivery times still tracking well below the levels seen prior to the outbreak of hostilities in the Middle East.

Easing Inflationary Pressures and Moderating Job Cuts

A significant highlight of the June survey was a distinct cooling of the cost environment, primarily driven by a sharp drop in international oil prices.

• Softest Cost Inflation Since March: While input costs remain elevated, the rate of input price inflation slowed down in June, snapping a sustained upward climb that began in September of last year.
• Less Aggressive Factory Gate Pricing: Mirroring the relief in input costs, eurozone manufacturers moderated their own price-setting behaviors. Output charge inflation subsequently eased to a three-month low.
• Moderate Headcount Reductions: Factory payroll numbers continued to contract in June. However, the rate of job cuts was moderate and slower than what was observed in May.
• Rebounding Confidence: Business optimism regarding future output climbed to a four-month high, continuing its recovery from April’s 17-month low. However, year-ahead expectations still track slightly below their historical trend.

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