After breaking out to the upside on Friday, the Euro ended the US trading session approximately 50 pips away from its all-time high. Of the many countries or regions that released manufacturing PMI reports on Monday, the Eurozone and Switzerland were the only ones to report stronger rather than softer growth. The acceleration in activity came predominately from Germany where growth has benefited from the drop in the Euro. Between the beginning of May and the middle of June, the EUR/USD fell from 1.3685 down to 1.3264.
The breakout in the EUR/USD is also reflective of the market?s expectations for Thursday?s interest rate decision. Stronger growth and inflationary pressures suggest that the ECB could be more hawkish this week but at the same time they may want to wait until after the summer holiday season in Europe to change the degree of their bias. Contrary to popular belief, the interest rate curve is only pricing in a slim chance for a 25bp rate hike by the end of the year. Meanwhile the Swiss Franc has also performed extremely well over the past 24 hours. The combination of rising risk aversion as well as a sharp jump in the Swiss PMI index sent the Swiss franc to a 16 year high against the Japanese Yen. Consumer prices are due for release tomorrow. Should inflation also accelerate more than expected, then Switzerland would be a shoe-in for rate hike come September.