Euro: Pressured as ECB hike looms – Danske Bank

Euro is facing pressure as the European Central Bank prepares to increase interest rates, according to Danske Bank's research team. The euro slipped below 1.1600 against the US dollar due to a hawkish stance from the Federal Reserve and geopolitical concerns. Euro area inflation has risen back above 3%, supporting the expectation of a September hike in the ECB rate.

Manufacturing data indicate a rebound, primarily driven by Germany, while unemployment remains historically low. Euro area inflation reached 3.3% year-over-year, with core inflation settling at 2.4%. The rise in headline inflation was solely due to increased energy prices, while food and core inflation remained unchanged and declined, respectively.

Core inflation momentum remains weak, with no signs of energy prices affecting underlying inflation. In the Eurozone, final manufacturing PMI stood at 52.7, slightly below the flash reading of 52.8. Germany's PMI increased to 54.3 from 54.1, while Spain and Italy's PMIs fell slightly below the 50-mark. Euro area manufacturing is rebounding, with Germany leading the charge.

The Euro area unemployment rate remained steady at 6.4% in July, slightly higher than anticipated. In currency markets, EUR/USD dipped below 1.16, while the yen surpassed the 160-mark against the dollar. Small movements have been observed. The GBP/USD pair declined to near 1.3500 at the start of the European trading day, with the US Dollar strengthening against the Euro due to hawkish Federal Reserve expectations and escalating Middle East tensions.

Traders will monitor Eurozone Retail Sales and US employment data, due out on Friday. Gold faced significant pressure after surging US Treasury yields and higher oil prices.