- EUR/USD edges higher from the round-level support of 1.1100 as investors underpin the Euro (EUR) against the US Dollar. However, the Euro is underperforming against other major peers as markets increasingly expect the European Central Bank (ECB) to reduce interest rates again in September.
- Rising expectations of ECB rate cuts in September are supported by the uncertainty over the Eurozone’s economic outlook and cooling wage pressures.
- The flash Eurozone HCOB PMI report for August, released on Thursday, rose to 51.2, higher than expected, indicating that overall business activity expanded at a faster pace. However, this rosy picture signaled by the PMI surveys was linked to strong demand from the Olympic Games in Paris and it is likely to be short-lived rather than structural. Therefore, the uncertainty over the economic performance in the coming months remains intact.
- PMI data also signaled that business activity in the Eurozone’s largest economy, Germany, declined sharply mainly due to a significant drop in foreign demand, with no recovery in sight, signaling the need for fresh stimulus to boost demand.
- Meanwhile, a sharp decline in the Q2 Negotiated Wage Rates propelled hopes of more ECB rate cuts this year. The data, which was released in Thursday’s European trading hours, showed that Negotiated Wage Rates grew at a slower pace of 3.55% from 4.74% in the first quarter this year, easing fears of inflation remaining persistent.
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