**EUR/USD Holds Modest Bid Amid US Government Shutdown Threat and Mixed PMI Readings**
*Based on original reporting by Christian Borjon Valencia, FXStreet*
The EUR/USD currency pair steadied near the 1.0660 level on Tuesday, October 3rd, 2023, maintaining a modest bid in a trading session influenced by broad risk sentiment, political uncertainty in the US, and mixed economic indicators on both sides of the Atlantic. The euro saw limited support as soft US economic data failed to lift the dollar significantly, while looming fears of a potential government shutdown in the United States restrained greenback strength.
This article provides an in-depth analysis of the EUR/USD outlook, highlighting the fundamental drivers influencing the pair and the potential implications for forex traders as markets navigate inflation data, monetary policy concerns, and geopolitical risk.
## Key Drivers Behind EUR/USD Stability
Despite recent economic uncertainties and concerns around a potential US government shutdown, the EUR/USD pair has shown relative firmness around the mid-1.06 area. Several fundamental and technical factors are contributing to this development:
### 1. US Government Shutdown Concerns
The specter of a US government shutdown has cast a shadow over market optimism, resulting in cautious sentiment among traders.
– Congressional gridlock threatens to shut down large portions of the federal government unless funding measures are approved. This introduces a new element of uncertainty into global financial markets.
– The US dollar has been under modest pressure amid concerns that a shutdown could delay future economic data releases. These data points are crucial for the Federal Reserve’s monetary policy outlook and interest rate decisions.
– A shutdown could also slow economic activity in Q4 2023, a risk increasingly being priced in by markets.
These political developments put the greenback under some selling pressure, offering minor support to the euro in the short term.
### 2. Mixed Eurozone and US PMI Readings
Both the Eurozone and US released final Purchasing Managers’ Index (PMI) readings for September, which showed a mixed picture of economic health.
– The Eurozone’s final Services PMI came in slightly better than expected at 48.7, surpassing the preliminary estimate of 48.2. Despite the upward revision, the reading still indicates contraction in the euro area’s services sector.
– Overall, Eurozone Composite PMI rose from the flash estimate of 47.1 to 47.2, but it remains in contraction territory, putting pressure on the European Central Bank’s (ECB) policy path.
– In the US, ISM Services PMI for September fell more than expected to 53.6, down from 54.5 in August, and below the expected 53.6. This reflects slower growth in the US services industry.
The divergence in PMI data limits EUR/USD upside potential, but markets appear more focused on declining momentum in the US economy, which contrasts with expectations of a stronger dollar rally.
### 3. US Dollar Index (DXY) Performance
– The US Dollar Index, which tracks the strength of the greenback against a basket of six major peers, declined slightly to trade near 106.80 during Tuesday’s session after reaching a 10-month high earlier in the week.
– The dollar’s retreat followed signs of cooling in certain economic indicators, especially the ISM services report and JOLTS job openings data.
A weakening dollar, combined with political risk and tempered rate expectations, helped EUR/USD hold above short-term support zones.
## Market Reactions and Yield Movements
US Treasury yields fell across the curve on Tuesday, reinforcing the notion that market participants expect a more cautious Federal Reserve following weaker-than-anticipated economic readings.
– The 10-year US Treasury yield fell to around 4.70 percent after nearly touching 4.75 percent in the previous session, its highest level in about 16 years.
– Lower yields often correspond to reduced demand for the US dollar as foreign investment returns dim, thus acting in favor of euro strength.
– Expectations
Read more on EUR/USD trading.