Euro: PMI strength limits downside against US Dollar – BBH
Brown Brothers Harriman’s (BBH) Elias Haddad reports EUR/USD is weaker on broad Dollar strength, but Eurozone data and European Central Bank (ECB) expectations cushion the downside. September Eurozone Purchasing Managers' Index (PMI) beat forecasts, supporting additional ECB hikes.
Brown Brothers Harriman's Elias Haddad reveals that Euro against US Dollar exchange rate is more weakened by a strong Dollar, yet Eurozone statistics and European Central Bank's expectations mitigate the downside. September Eurozone Purchasing Managers Index (PMI) surpassed expectations, aiding further ECB rate hikes. The swaps curve now fully reflects a 75 basis points of tightening to 3.25%, which is above the ECB's neutral range.
This leaves clear support levels for EUR/USD. Euro/US Dollar has declined due to a broad US Dollar strength. Eurozone September PMI was higher than expected, supporting the possibility of additional ECB hikes. The composite PMI reached a 41-month peak at 53.1 (forecast: 51.7) compared to 52.0 in August. Private sector expansion was driven by growth in services, manufacturing remained unchanged at a multi-year peak of 52.7, with Germany and France contributing to the rise in private sector activity.
The swaps curve fully prices in 75 basis points of ECB tightening to 3.25% in the following year, capping EUR downside. Potential support levels for EUR/USD are identified at 1.1400, 1.1353 (July 28 low), and 1.1325 (June 24 low).
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