Euro: Dollar strengthens against EUR after hot US PMIs – Danske Bank

Danske Bank’s Danske Research Team notes that strong US PMIs and hawkish Federal Reserve pricing weighed on EUR/USD. The composite PMI rose sharply, driving expectations for another Fed rate hike in October and pulling EUR/USD below 1.14. The team highlights rising services input prices and tighter financial conditions as key drivers of US Dollar strength against the Euro.

Strong US PMIs push EUR/USD below 1.14

"In the euro area, the composite PMI surprised clearly to the upside, rising to 53.1 in September (cons.: 51.7, prior: 52.0), the highest level in more than three years. Services drove the increase, climbing to 53.0 (cons.: 51.4, prior: 51.6), while manufacturing held steady at 52.7 (cons: 52.6, prior: 52.7)."

"All price indices rose, and services output prices reached their highest since early 2024, suggesting that higher energy costs could be spreading, although the level itself is not alarming. With growth and inflation pointing in the same direction, the print looks hawkish for the ECB, and short-end rates rose markedly on the release. We expect two further hikes, and energy prices over the coming month will determine whether the first comes as early as October."

"In the US, the flash PMIs also came in well above expectations, with the composite increasing to 58.4 in September from 56.0 in August. Manufacturing picked up to 57.0 from 53.9, with new orders, output and employment all higher, while services strengthened to 58.7 from 56.5."

"The details reveal that services input prices are rising at the fastest pace since November 2022, pointing to price pressures that could be hard to explain by energy alone. Overall, the release was hawkish as in the euro area, and it pulled EUR/USD below 1.14, as markets priced in a 70% chance of another Fed hike in October."

"Yesterday's superheated US flash PMIs triggered a sharp tightening in financial conditions during the European evening. Both equity and bond markets sold off, and USD strengthened across all other G10 currencies."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)