EUR/USD was impacted by hawkish Federal Reserve pricing and high US PMIs, according to Danske Bank's Danske Research Team. EUR/USD fell below 1.14 as a result of the composite PMI's significant increase, which raised expectations for another Fed rate hike in October. The group identifies tighter financial conditions and growing service input costs as the main causes of the US dollar's strength against the euro.
EUR/USD drops below 1.14 due to strong US PMIs
"The composite PMI in the euro area surprised everyone by jumping to 53.1 in September (cons.: 51.7, prior: 52.0), the highest level in over three years. While manufacturing remained stable at 52.7 (cons: 52.6, prior: 52.7), services drove the increase to 53.0 (cons.: 51.4, prior: 51.6).
While the amount alone is not concerning, all price indices increased and services output prices hit their highest point since early 2024, indicating that rising energy costs may be spreading. The ECB's print appears hawkish because GDP and inflation are moving in the same direction, and short-end rates significantly increased following the announcement. We anticipate two further increases, and whether the first occurs as early as October will depend on energy costs over the next month.
"The flash PMIs in the US again exceeded forecasts, with the composite rising from 56.0 in August to 58.4 in September. Services improved to 58.7 from 56.5, while manufacturing increased to 57.0 from 53.9, with new orders, output, and employment all rising.
The information shows that prices for services inputs are increasing at the quickest rate since November 2022, suggesting pricing pressures that may be difficult to attribute to energy alone. As markets priced in a 70% possibility of another Fed hike in October, the announcement, which was generally hawkish as in the euro region, drove EUR/USD below 1.14.
"During the European evening, financial conditions sharply tightened as a result of yesterday's extremely high US flash PMIs. The USD gained value relative to all other G10 currencies, but the bond and stock markets also declined.
EUR/USD drops below 1.14 due to strong US PMIs
"The composite PMI in the euro area surprised everyone by jumping to 53.1 in September (cons.: 51.7, prior: 52.0), the highest level in over three years. While manufacturing remained stable at 52.7 (cons: 52.6, prior: 52.7), services drove the increase to 53.0 (cons.: 51.4, prior: 51.6).
While the amount alone is not concerning, all price indices increased and services output prices hit their highest point since early 2024, indicating that rising energy costs may be spreading. The ECB's print appears hawkish because GDP and inflation are moving in the same direction, and short-end rates significantly increased following the announcement. We anticipate two further increases, and whether the first occurs as early as October will depend on energy costs over the next month.
"The flash PMIs in the US again exceeded forecasts, with the composite rising from 56.0 in August to 58.4 in September. Services improved to 58.7 from 56.5, while manufacturing increased to 57.0 from 53.9, with new orders, output, and employment all rising.
The information shows that prices for services inputs are increasing at the quickest rate since November 2022, suggesting pricing pressures that may be difficult to attribute to energy alone. As markets priced in a 70% possibility of another Fed hike in October, the announcement, which was generally hawkish as in the euro region, drove EUR/USD below 1.14.
"During the European evening, financial conditions sharply tightened as a result of yesterday's extremely high US flash PMIs. The USD gained value relative to all other G10 currencies, but the bond and stock markets also declined.
