The euro slipped toward 1.1450 against the dollar as traders positioned for today's September flash PMI releases from France, Germany, and the wider euro area. The data carries added weight because the ECB has said it wants to see the broader inflation picture, not just the energy shock, before moving again on rates.
Flash PMIs set to test growth momentum
EUR/USD declined close to 1.1450 in the prior session even as oil and natural gas prices eased. Markets are looking for the Eurozone manufacturing PMI at 52.6, down from 52.7 prior, with the services reading seen slipping to 51.5 from 51.6.
Danske Markets, by contrast, forecasts the manufacturing index will rise to 53.3 from 52.7, supported by rising orders and a rebound in global activity, while expecting services to edge down to 51.4 from 51.6 as consumers stay cautious.
Inflation details, not headline growth, could move the ECB
The headline PMI numbers will show whether euro area growth is holding up, but the bigger question for the ECB is what the report says about price pressures. Input costs, and especially output prices — what firms actually charge customers — matter most, since a renewed pickup there would show companies passing on higher costs rather than absorbing them.
Markets currently price roughly a 45% chance of another 25 basis point rate hike in October, with a further hike only fully priced in by December at the earliest. The ECB has pushed back against tightening policy based on energy prices alone, insisting instead on assessing the broader economy and inflation trend before acting.
Confidence weakens as energy costs bite
Separately, Eurozone consumer confidence fell more than expected in September to -16.5, against a consensus of -16.0, ending four straight months of improvement. Danske Markets said the decline was likely driven by the recent rise in energy costs, even as the link between confidence and actual spending has looked weaker in recent quarters.
More persistent price pressures in the services sector would point to more domestically generated inflation, while employment trends in today's PMIs can offer further clues on wage and labour-cost pressures. A modest PMI beat alone may not shift the ECB's outlook, but stronger activity paired with firmer price pressures could make an October rate hike look more plausible than markets currently expect.
Sources: Investinglive, ActionForex
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