EUR/USD's Bumpy Ride: Central Banks and Economic Data.

28 Eki 2023

EUR/USD's Bumpy Ride: Central Banks and Economic Data.

The European Central Bank's decision to halt rate hikes and express concerns about economic growth has influenced the EUR/USD pair's performance. While the pair attempted a recovery during the week, it faced challenges and closed with modest losses around 1.05580. The US Dollar initially faced pressure due to reduced escalation in the Israel-Hamas conflict, but other factors came into play.

Notably, the Euro faced a sharp decline as S&P Global reports revealed a deepening economic contraction in the Eurozone, particularly in Germany. The German Manufacturing PMI showed modest improvement, but the services sector contracted. The Eurozone's economic downturn accelerated, with the Composite PMI reaching its lowest point in almost three years at 46.5.

In contrast, the United States reported more encouraging data. Business activity in October exceeded expectations, with the preliminary Manufacturing PMI at 50 and the services index at 50.9. The Composite PMI reached 51, the highest in three months. Additionally, the US Dollar benefited from a risk-off environment, although mixed earnings reports and fluctuations in government bond yields affected global markets.

The EUR/USD pair remained under selling pressure after the European Central Bank's monetary policy decision. The ECB maintained rates, following ten consecutive hikes, and expressed concerns about economic growth, which it sees as skewed to the downside. They also emphasized the persistence of high inflation and the possibility of additional rate hikes.

On the same day, the US reported an impressive preliminary estimate of Q3 Gross Domestic Product (GDP) growth at an annualized pace of 4.9%, surpassing expectations. Unemployment data showed a tight labor market, with Initial Jobless Claims at 210K.

Despite some optimism, uncertainty remains high in the markets. The upcoming week will bring crucial economic events that could provide more clarity. Germany and the EU will release Q3 GDP and inflation data. The US will unveil the October ADP report, ISM Manufacturing PMI, and the Federal Reserve's monetary policy decision. Finally, the October Nonfarm Payroll report and ISM Services PMI will be released in the US.

This mix of economic data and central bank decisions will likely impact the future direction of the EUR/USD pair.