EUR/USD climbs toward six-week highs as weak US data pressures the Dollar

• EUR/USD extends gains toward six-week highs as the US Dollar stays pressured by dovish Fed expectations.
• ISM Services PMI beats expectations, but underlying components point to softer demand and weak hiring.
• Traders now turn to Friday’s PCE inflation report, the final key release before the Fed’s interest rate decision.

The Euro (EUR) trades on the front foot against the US Dollar (USD) on Wednesday as the Greenback remains under sustained selling pressure amid dovish Federal Reserve expectations, while traders digest the latest US services sector data. At the time of writing, EUR/USD is trading around 1.1660 after briefly climbing to its highest level since October 20, near 1.1675.

The latest ISM Services PMI report offered a mixed picture of US economic momentum. The headline Services Purchasing Managers Index (PMI) rose slightly to 52.6 in November from 52.4, beating the consensus forecast of 52.1 and signalling a steady expansion in activity.

However, the underlying details were less encouraging. New Orders came in at 52.9, down from 56.2 but remaining in expansion territory and above its 12-month average of 51.7%. The Employment Index contracted for a sixth straight month at 48.9, though it improved from October’s 48.2. The Prices Index eased to 65.4 from 70.0, its lowest since April.

Earlier in the day, the final S&P Global US Services PMI figures also pointed to moderating activity. The Services PMI slipped to 54.1, down from October’s 54.8 and below the flash estimate of 55.0, marking a five-month low.

The Composite PMI eased to 54.2, compared with a flash reading of 54.8 and October’s 54.8. The survey highlighted the strongest rise in new business this year, improving confidence following the end of the government shutdown, and an uptick in employment.

Attention also turned to labour-market signals after the latest ADP Employment Change report pointed to renewed softness in private hiring. Private-sector employment fell by 32,000 in November, sharply missing expectations for a 5,000 increase, while October’s figure was revised higher to a 47,000 gain from the initially reported 42,000.

Taken together, the softer momentum across the services sector and renewed weakness in private hiring have reinforced expectations that the Federal Reserve (Fed) will proceed with a rate cut at next week’s monetary policy meeting.

With the Dollar already on the back foot, traders now look ahead to Friday’s Personal Consumption Expenditures (PCE) inflation report, which will serve as the final key input before policymakers deliver their decision.