German Services PMI Increases from 48.3 to 50.1 in March

On Thursday, the German services sector was in focus. The services sector remained the main contributor to inflation as investors raised bets on a June ECB rate cut.

German Services PMI

The German Services PMI increased from 48.3 to a six-month high of 50.1, up from the preliminary figure of 49.8.

According to the finalized survey,

• New business continued to decline in March, though the rate of decline was the least marked since July 2023. Inflows of news business from overseas influenced new business trends.
• The rate of job creation pulled back from the February eight month high.
• Input price inflation slowed in March. However, wage growth remained the main contributor to input price trend inflation, which continued to remain elevated relative to the long-run average.
• Average prices charged increased at a less marked rate, but also remained elevated by historical levels. Nonetheless, output price inflation tumbled to its lowest level in almost three years.
• Optimism across the services sector improved for the fourth month. Optimism reached its highest level since 2022.

After the German Services PMI, the Eurozone Services PMI also warranted investor attention. In March, the Eurozone Services PMI increased from 50.2 to 51.5, up from a preliminary 51.1.

ECB Monetary Policy Impact Analysis

The Services PMI numbers were pivotal to investor bets on an ECB interest rate cut. As the main contributor to euro area inflation, a pullback in input and output prices signaled a softer inflation outlook. Significantly, the inflation trends aligned with recent ECB forward guidance. An increasing number of ECB policy majors favor a June interest rate cut.

However, wage growth and a rebound in service sector activity may draw the attention of ECB voting members.

EUR/USD Reaction to the German Services PMI Survey

Before the finalized German Services PMI, the EUR/USD fell to a low of $1.08319 before rising to a high of $1.08569.

However, in response to the German Services PMI, the EUR/USD rose to a high of $1.08583 before falling to a low of $1.08534.

On Thursday, the EUR/USD was up 0.20% to $1.08576.

Up Next

Later today, the ECB Monetary Policy Meeting Accounts will draw investor interest. Investors will take clues from the minutes on ECB plans to cut interest rates.

The US economic calendar also warrants investor attention. Fed speakers and weekly jobless claims data could move the dial.

Economists forecast initial jobless claims to increase from 210k to 214k in the week ending March 30. An unexpected fall in jobless claims could test bets on a June Fed rate cut. However, FOMC member speeches will also influence sentiment toward the Fed rate path.

FOMC members Thomas Barkin, Austan Goolsbee, Loretta Mester, and Adriana Kugler are on the calendar to speak. Views on inflation, the economic outlook, and the timeline for a Fed rate cut need monitoring.