Brown Brothers Harriman’s (BBH) Elias Haddad reports EUR/USD is firmer on broad US Dollar (USD) weakness and stronger-than-expected Eurozone August Purchasing Managers’ Index (PMI) data. Elias Haddad highlights the composite PMI at a nine-month high, driven by manufacturing. He notes swaps have virtually fully priced a 25 bps European Central Bank (ECB) hike in September and around 60 bps of tightening over twelve months, placing rates near the top of the ECB’s neutral range.
Eurozone data underpins EUR/USD
“EUR/USD is firmer on broad USD weakness and encouraging Eurozone economic activity. The Eurozone August PMI was stronger than anticipated.”
“The composite PMI increased to a nine-month high at 52.1 (consensus: 51.7, prior: 52.0) reflecting a solid and accelerated rise in manufacturing activity. The pace of expansion in services activity was unchanged from July.”
“That’s reasonable and would leave the policy rate near the top of the ECB’s estimated neutral range (1.75%-3.00%).”
“The swaps curve has virtually fully priced in a 25bps ECB rate hike to 2.50% at the next September 10 meeting and a total of 60bps of tightening over the next twelve months.”
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