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. The swaps curve now more than fully prices 75 bps of tightening to 3.25%, above the ECB’s neutral range, with clearly defined support levels for EUR/USD.

Eurozone data backs further ECB hikes

"EUR/USD is down on broad USD strength. The Eurozone September PMI was stronger than anticipated and backs additional ECB hikes. The composite PMI increased to a 41-month high at 53.1 (consensus: 51.7) vs. 52.0 in August."

"The details showed services growth quickened to a 10-month high, manufacturing was unchanged at a multi-year high of 52.7, and both Germany and France contributed to the expansion in private sector growth."

"The swaps curve more than fully price in a total of 75bps of ECB tightening to 3.25% in the next twelve months. That would leave the policy rate above the ECB’s 1.75% to 3.00% neutral range estimate and limits EUR downside."

"Next support levels for EUR/USD are offered at 1.1400, 1.1353 (July 28 low), and 1.1325 (June 24 low)."

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