Preliminary PMI data for May from the Eurozone and the UK will be released today in the first half of the day, and the market will focus closely on these figures.

For the Eurozone, the consensus forecast for the manufacturing PMI suggests the index will remain near the April level of 52.2, with a slight slowdown to 51.5-52.0. It should be noted that in April, the manufacturing sector posted its best results in nearly 4 years; however, much of that growth was attributed to pre-emptive purchasing in light of supply chain concerns and the war—rather than to real demand growth. This effect may weaken in May.

The situation in the services sector looks much worse: in March, the Eurozone services PMI fell to 50.2—its lowest level since May last year, and the composite PMI for April dropped to 48.8—a 17-month low, indicating a contraction in activity. The May forecast is around 49.5-50.0, meaning the market is once again balancing on the edge between growth and contraction. If the data comes in below 50, the euro will face additional pressure: weakness in the services sector, combined with inflationary pressure, creates the stagflation trap that Nagel and Wunsch warned about in their recent speeches. Conversely, if the PMI surprises with growth above 50, the euro may receive short-term support—the market will interpret this as a signal that the economy is managing the energy shock better than expected.

For the UK, the April picture looked noticeably better. The manufacturing PMI jumped to 53.7—the highest since May 2022—while the services PMI increased to 52.7, significantly exceeding the market expectations of 50.0. The forecasts for May are more cautious: the manufacturing PMI is expected to be around 52.0-52.5, and the services PMI around 51.5-52.0.

It's worth noting that the April growth was also partially explained by the effect of pre-emptive purchases, and the resilience of the May figures will be a real test for the British economy. If the data holds above April levels or at least near them, the pound will have a strong argument for strengthening—especially in light of the recent inflation data, which unexpectedly fell to 2.8%. The combination of soft inflation and strong PMIs could maintain the firmness of the Bank of England's decisions regarding fewer rate hikes, which paradoxically may weaken the pound. If the PMI disappoints, particularly in the services sector, pressure on the pound will increase from both sides.