03.05.202118:35 Forex Analysis & Reviews: Euro attempts to rise amid top results in European Union factories

It is expected that the second quarter for the eurozone countries will be much stronger than the first. And the evidence of this is the released macro statistics of the region. Retail sales in Germany, Europe's largest economy, unexpectedly showed a very encouraging result - an increase of 11% in annual terms, against the expected 0.3%. In monthly terms, this indicator grew by 7.7% at once, although growth was predicted by only 3%.

The released data favors the single European currency, which rose to $1.2049 from the previous close of $1.2018 per euro.

The growth of euro quotes is also facilitated by a real boom in the production activity of European enterprises in April. Although the third wave of COVID-19 in Europe forced some countries to close most of the key service sectors, the manufacturing sector remained mostly open and practically unaffected. This, combined with growing demand, particularly from the United States and China, has led to an unprecedented leap in factories, as well as a sharp rise in hiring.

IHS Markit's final manufacturing purchasing managers' index (PMI) climbed to 62.9 in April from 62.5 in March, according to research by US-UK information provider IHS Markit. At the same time, the index, which is seen as a good indicator of economic health, in the eurozone fell from a March record high of 63.3 to 63.2.

It is worth recognizing that restrictions on supplies to the EU have also reached unprecedented levels and led to a record increase in the number of unfinished orders at factories. The work in progress index rose from 60.4 to a record 61.5.

Since prices for raw materials were growing at an unprecedented rate, factories also had to raise their own prices quite quickly. It is difficult to predict how long this upward price pressure will last and to what extent these higher prices for goods and services will reach consumers.

At the same time, Vice President of the European Central Bank Luis de Guindos said that as soon as vaccination against coronavirus in the Euroregion reaches its peak and the European economy gains momentum, the regulator will begin to gradually curtail emergency stimulus measures. The ECB meeting is scheduled for June 10, while conservative politicians are already actively advocating a reduction in bond purchases.

The central bank hopes that 70% of Europe's adult population will be vaccinated by early summer, and the economy will begin to recover at a faster pace. However, today's reality is that in the eurozone less than 30% of the population received the first dose of vaccine. According to experts, it is still not worth expecting a complete vaccination of 70% even before the end of July, the share of the likelihood of such a scenario developing in the middle of summer is negligible. In this respect, the end of August looks much more realistic.

The acceleration in vaccination rates is directly related to the normalization of monetary policy by the ECB. De Guindos is convinced that a long period of emergency stimulation of the economy is as disastrous for her as premature cuts in measures. The main thing here is that everything happens on time, in connection with which the ideal time for this has been determined - the middle of summer, in extreme cases, its end.

By the way, a huge part of the European service sector today has not collapsed only thanks to government subsidies. However, de Guindos urges governments to gradually phase out this support, even if it becomes an overwhelming burden on budgets and significantly increases the level of debt.