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Eurozone PMI stokes ECB rate cut bets

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The Euro-Dollar currency pair struggles to hold the key support of 1.1100 in Tuesday’s European session after a sharp decline on Monday. EURUSD remains under pressure as Monday’s flash HCOB Purchasing Managers Index (PMI) data for September stoked market expectations for the European Central Bank to opt for a second straight interest rate cut in the October meeting.

The PMI report showed that the business activity unexpectedly sank into contraction, which was estimated to fall slightly, but remained above the 50.0 threshold that separates expansion from contraction.

A decline in the HCOB Composite PMI dominantly came from the manufacturing sector, where contraction in activities accelerated at a faster-than-expected pace. The service sector remained on a growth trajectory, but at a slower pace than what economists forecasted.

Weakening Eurozone activity prospects would add to obstacles for ECB policymakers in pursuit of stable market conditions who are already worried about price pressures remaining persistent.

Last week, ECB Governing Council Member Isabel Schnabel said that sticky services inflation is keeping headline inflation at an elevated level.

In Tuesday’s session, Deutsche Bundesbank President Joachim Nagel is scheduled to give a speech and is expected to provide fresh cues on the ECB’s likely interest rate action for the remaining year.

EURUSD chart by TradingView

(Source: OANDA)