**EUR/USD Retreats as Strong US PMI Data Strengthens the Dollar; Market Awaits Powell’s Comments**
Adapted and expanded from the original article by Anil Panchal, FXStreet
The EUR/USD currency pair came under pressure during Tuesday’s trading session as solid US economic data bolstered the US dollar across major currency pairs. Market participants witnessed a sharp retreat in the euro from near a two-week high, following an unexpected upside in US business activity that reignited confidence in the strength of the US economy.
This renewed strength in the US dollar shifted investor sentiment as the market began reassessing its expectations for Federal Reserve interest rate cuts. As traders refocused their attention on forthcoming remarks by Federal Reserve Chair Jerome Powell, speculation intensified over how long the central bank will maintain current interest rate levels to manage inflation.
Below is a comprehensive breakdown of the key drivers behind the recent EUR/USD movement, an analysis of the economic indicators influencing the pair, and a forward-looking outlook as markets digest Powell’s upcoming address.
**US Business Activity Rebounds Sharply, Surpassing Forecasts**
Investors were taken by surprise on Tuesday when the preliminary S&P Global Purchasing Managers’ Index (PMI) for August revealed a significant rebound in US business activity. Both the services and manufacturing sectors posted readings above expectations.
– **US Services PMI** (August Prelim): 51.0 (Consensus: 50.5, Previous: 50.0)
– **US Manufacturing PMI** (August Prelim): 50.4 (Consensus: 49.3, Previous: 49.0)
– **US Composite PMI**: 50.4 (Up from 49.6 in July)
These figures suggest a faster-than-expected recovery in the US economy. Notably, the composite index — which blends manufacturing and services activity — climbed back above the 50.0 mark, signifying expansion rather than contraction.
The improvement in both sectors lends support to the Federal Reserve’s cautious approach to monetary easing. It indicates that businesses are seeing increased demand and output, which may, in turn, help sustain labor market resilience and inflationary pressures.
**US Dollar Gains Strength Across the Board**
The stronger-than-expected PMI results caused an immediate reaction in financial markets. The US dollar strengthened against most major currencies, including the euro, as anticipation grew that the Federal Reserve would maintain higher interest rates for an extended period.
– **US Dollar Index (DXY)** rose near 104.00, reversing its earlier losses and moving closer to its recent highs.
– The **EUR/USD pair dropped** nearly 50 pips from an intraday peak near 1.0930, settling below the 1.0880 mark during the New York session.
The dollar’s strength was further underpinned by a retreat in market bets on a near-term Fed rate cut. Futures markets, which previously priced in a first rate cut as early as March 2025, showed a shift in sentiment. With economic data consistently outperforming expectations, the ongoing narrative supports the Fed’s hawkish tilt.
**Euro Weakens on Relative Economic Divergence**
While the euro had previously gained support from improved preliminary Eurozone PMIs earlier in the day, the broader divergence in economic performance between the US and the Eurozone soon weighed heavily on the single currency.
– **Eurozone Services PMI** (August Prelim): 48.3 (Down from 50.2, and below the 50 mark signaling contraction)
– **Eurozone Manufacturing PMI** (August Prelim): 43.7 (An uptick from the previous 42.7 but still deep in contraction)
– **Eurozone Composite PMI**: 47.0 (Below the 50.0 threshold, suggesting an economic slowdown)
These figures point to weakening momentum in the Eurozone’s economy, particularly in the services sector, which had been one of the more resilient components earlier in the year. Declining new orders and
Read more on EUR/USD trading.