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Euro slides after strong US PMI boosts Fed hike expectations

EUR/USD was last around 1.1401, near late-July levels, as markets raised the implied probability of an October Fed hike to 68%.

Reported · Written up by our desk · Major Pairs

The euro weakened against the dollar on Wednesday, with EUR/USD extending its intraday decline as stronger-than-expected US business activity data reinforced expectations for another Federal Reserve rate hike. FXStreet said the pair was trading around 1.1401, close to levels last seen in late July.

S&P Global’s preliminary US Composite PMI rose to 58.4 in September from 56.0 in August. Manufacturing PMI climbed to 57.0, beating the 53.5 forecast, and Services PMI rose to 58.7 versus expectations of 56.0, with the survey also pointing to a sharp rise in prices paid, keeping inflation concerns in focus.

FXStreet reported that the US dollar strengthened further after the Fed’s 25 basis point rate increase last week and its guidance that another hike could follow. The US Dollar Index, DXY, was around 101.00, its highest level since July 31, and traders according to CME FedWatch saw a 68% chance of a hike at the October meeting, up from 53% before the data.

The report also cited hawkish comments from Fed Governor Michael Barr, who said growth and the labor market remain solid while inflation is not clearly moving back toward the 2% target, suggesting additional hikes may be needed. In parallel, Eurozone PMI data also beat forecasts and stayed in expansion territory, while ECB policymaker Joachim Nagel said rates could move into “mild restrictive territory” despite concern that core inflation remains too high.

Latest closeEUR/USD 1.138 ▼0.6%|Dollar index 101.16 ▲0.7%

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