EUR/USD Market Outlook

Sept. 6, 2023

The EUR/USD pair saw a slight rebound after hitting three-month lows.

The EUR/USD pair saw a slight rebound after hitting three-month lows. However, the Euro struggled to capitalize on hawkish ECB remarks.

The US Dollar (USD) gained strength due to rising US Treasury bond yields following the US long weekend, putting pressure on EUR/USD. Market caution further limited the pair's recovery.

Early Wednesday, the Euro received a boost from hawkish ECB comments. Nonetheless, this failed to significantly alter market expectations regarding the upcoming ECB rate decision. Currently, there's a 70% probability, according to Reuters, that the ECB will leave its policy rate unchanged next week.

ECB Governing Council member Klaas Knot suggested that markets might be underestimating the likelihood of an interest rate increase next week. Additionally, ECB Governing Council member Francois Villeroy de Galhau emphasized that "options are open" for future rate meetings.

Looking ahead, the focus shifts to the August ISM Services PMI in the US, expected to dip slightly from July to 52.5. If the data indicates a contraction below 50 in the service sector's business activity, it could weaken the USD and support a EUR/USD upturn.

However, US stock index futures showed a 0.2% to 0.4% decline, suggesting a risk-averse mood. Unless sentiment improves later in the day, the USD might maintain its strength, even if the initial response to the PMI report pressures the currency.

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