EUR/USD Under Pressure as Eurozone PMI Hits 18-Month Low Amid Contraction

EUR/USD faces renewed downside pressure as Eurozone business activity deteriorated further in May, with the composite PMI falling to 48.5 from 48.8, marking an 18-month low and back-to-back months of contraction for the first time since late 2024. The services sector showed marginal improvement with the final PMI reading at 47.7, beating the preliminary estimate of 46.4 but still firmly in contraction territory. Total new order inflows in services declined for a third consecutive month, underscoring persistent demand weakness across the bloc. Surging price pressures compound the ECB's policy dilemma, as persistent inflation limits the scope for rate cuts even as the economy weakens. France remains a particular drag on the broader Eurozone performance. The data reinforces a stagflationary backdrop that weighs on euro sentiment. Traders should watch for near-term EUR/USD support levels, as continued deterioration in Eurozone activity data could accelerate euro weakness against the dollar and other major currencies heading into the summer months.