Eurozone Data Boosts Euro Ahead of Potential ECB Hikes
The Euro has weakened against the US Dollar due to broad USD strength, but its downside is limited by strong Eurozone data and expectations of further interest rate hikes from the European Central Bank (ECB). According to BBH's Elias Haddad, the September Eurozone Purchasing Managers' Index (PMI) beat forecasts, supporting additional ECB hikes. The composite PMI rose to a 41-month high at 53.1, exceeding consensus expectations of 51.7 and surpassing August's reading of 52.0.
The details showed services growth quickened to a 10-month high, while manufacturing remained unchanged at its multi-year high of 52.7. Germany and France contributed significantly to the expansion in private sector growth. The swaps curve now fully prices in a total of 75bps of ECB tightening to 3.25% in the next twelve months, which would leave the policy rate above the ECB's neutral range estimate of 1.75% to 3.00%.
BBH's analysis suggests that the Eurozone data backs further ECB hikes, limiting the downside for EUR/USD. The support levels for the currency pair are offered at 1.1400, 1.1353 (the July 28 low), and 1.1325 (the June 24 low).