A Glimmer Of Hope In Eurozone PMI Data

The euro remained steadily at $1.30 on Wednesday morning after Markit's Eurozone Composite PMI showed that business activity in the eurozone picked up in May. This marks the second straight increase for the region, something politicians and policymakers are likely to celebrate.

Reuters reported that the eurozone's PMI rose to 47.7 in May, up from 46.9 in March; but although it does show a marginal increase, a reading below 50 indicates contraction. Eurozone PMI has indicated contraction since September 2011 in all but one reading. In the May report, Markit saw the eurozone's longest ever recession continuing through the second quarter and predicted a 0.2 percent economic contraction.

The PMI readings showed some promise in Germany, where previous figures suggested the eurozone powerhouse could be slipping. However this month's reading showed marginal growth and indicated that the nation was stabilizing. In Spain, business activity still showed a decline, but the mildest decline in nearly two years.

The PMI data has given a glimmer of hope to the European Central Bank's prediction that the region will return to growth at the end of the year. At the ECB's Thursday policy meeting, investors will be watching for more clues about the bank's future policy decisions. Following May's meeting where the region's finance ministers lowered the interest rate to 0.5 percent, Bank President Mario Draghi hinted that he and his colleagues were considering taking the deposit rate below zero.

Negative deposit rates would essentially penalize banks for holding large cash reserves and could flood the markets with euros. Despite urging from other central banks like the Federal Reserve and the Bank of Japan, most analysts think a decision to lower deposit rates at Thursday's meeting is unlikely.

BY Laura Brodbeck