In the Asian trading session on Wednesday, the Euro/Dollar exchange rate rejected bids to extend its recovery from the previous day's low near 0.9950 and instead accepted renewed offers to trade at its session low. This is a reflection of the market's flight to the US dollar in advance of high-tier data/events in search of risk safety, and the key currency pair. The Fed's bellicose rhetoric has also helped push the pair lower.
On the other hand, the US Dollar Index (DXY) hit a multi-year high the day before, rising to 109.27 before falling back. While the present downturn in US data is driving the quote to retreat, the DXY bulls are supported by concerns of an economic slowdown and the US Federal Reserve's (Fed) quick rate hikes. It's also possible that the EU's contradictory economic statistics helped EUR/USD purchasers.
Initial S&P Global Manufacturing PMI for the United States in August came in at 51.3, down from 52.0 forecast and 52.2 in July, while Services PMI fell to 44.1 from 47.3 and 49.2 market expectations. As reported by S&P Global, the Composite PMI has fallen to 45, the lowest level in 27 months, signaling a potential crisis for the US economy. In addition, the number of newly constructed homes sold in the United States dropped to 0.511 million in July, down from 0.585 million the previous month and 0.575 million the market had predicted. The US Richmond Fed Manufacturing Index dropped to -8.0 in August from a reading of 0.0 the month before.
While the Services index fell further in August, early data for Manufacturing PMIs in Germany and Europe showed improvement despite contraction. Despite this, Germany's manufacturing PMI rose to 49.8 from 48.2 expected and 49.3 earlier, and the bloc's activity index came in at 49.7, above the market expectation of 49.00. The Services Purchasing Managers' Index (PMI) for the Eurozone fell to 50.2 from 50.5 (previously reported) and 51.2 (expected) while the PMI for Germany fell to 48.2. The flash reading of the Euro area Consumer Confidence Indicator increased from a record low of -27.3 in July to a level of -24.9 in August. The market's expectation was -28, therefore this outcome exceeded that.
Minnesota Federal Reserve Bank President Neel Kashkari was quoted as saying, "The greatest risk is that we are misunderstanding underlying inflation trends," by Reuters. If the Fed sees inflation creeping closer to their target of 2%, they may slow their rate of rate hikes, according to the official. On the other hand, ECB board member Fabio Panetta suggested to Reuters on Tuesday that additional tweaks to monetary policy could be required. In addition, ECB member Panetta warned that a recession in the eurozone was becoming more likely and added that such a downturn would ease price pressures. Before that, Bundesbank President and ECB policymaker Joachim Nagel said that the ECB must keep raising interest rates even as the possibility of a German recession looms, because inflation will remain uncomfortably high through 2023.
At press time, US 10-year Treasury rates were lingering at 3.05%, the highest level in a month, despite small advances for the day on Wall Street. S&P 500 Futures have been declining somewhat as of press time, which is notable.
Speculators in the EUR/USD pair looking for fresh impetus should pay close attention to the US Durable Goods Orders for July, which are expected to be 0.6% versus 2.0% previously. However, the remarks made by Federal Reserve Chairman Jerome Powell at the Jackson Hole conference hosted by the Kansas City Fed on Friday warrant serious study.
At this time, the EUR/USD was trading near 1.0055, but the bears still had their eyes on the two-week-old declining resistance line. But near 0.9850, the 61.8% FE of the pair's gains during late May and early August appears to tempt short-term sellers.
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