EUR/USD Slumps as Strong US Data Revives Fed Tightening Fears

The EUR/USD pair slipped to the 1.1660-1.1655 area on August 25, marking a moderate decline in value. This decrease is largely attributed to stronger-than-expected U.S. macroeconomic data, which has increased the probability of a Fed rate hike.

The preliminary U.S. S&P Composite PMI for August accelerated to 56.0 from 54.5, while the Services PMI rose to 56.8 from 54.6. The Manufacturing PMI remained in expansion territory at 53.2, solidifying the resilience of the U.S. economy.

The eurozone also showed signs of resilience, with the Flash Composite PMI rising to 52.1 from 52.0. However, German inflation accelerated to 2.8% y/y in July, mainly due to energy prices, while core inflation stood at 2.4%.

As a result, rate expectations have turned less supportive for the euro, with the market almost fully pricing in a 25-basis-point increase in the ECB deposit rate to 2.50% at the September 10 meeting.