Euro struggles as softer-than-expected US econoomic data offer little relief

EUR/USD struggles to attract buyers on Tuesday despite below-forecast US economic data, as the US Dollar (USD) shows little weakness following the release. At the time of writing, the pair trades around 1.1601 after touching an intraday low of 1.1587, but remains down roughly 0.14% on the day.

The ISM Manufacturing Purchasing Managers Index (PMI) fell to 54.6 in August from 55.6 in July, missing the market forecast of 55.2. The ISM Prices Paid Index held steady at 71.1, below expectations of 72.0, while JOLTS Job Openings rose to 7.271 million in July from 7.182 million but fell short of the 7.3 million forecast.

The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, retreats toward 99.55 after reaching an intraday high of 99.65. However, the downside in the US Dollar remains limited as the data do little to alter hawkish Fed expectations, with broader market sentiment still tied to inflation concerns.

Fed Chair Kevin Warsh’s tough stance at the Jackson Hole Symposium put September rate hike bets firmly back on the table. Adding to the hawkish tone, Fed Governor Michael Barr said on Tuesday that “the persistence of inflation above target creates risks.” Barr added that he favours steady rates if confident inflation is moderating but warned that “if inflation doesn’t moderate soon, it will be time for an interest rate hike.”

According to the CME FedWatch Tool, traders see around a 66% probability that the central bank will raise borrowing costs at its September 15-16 meeting. Attention now shifts to Friday’s Nonfarm Payrolls (NFP) report.

Elevated Oil prices due to tensions in the Middle East are also adding to inflation risks across major economies, reinforcing expectations that central banks will maintain a hawkish stance. Against this backdrop, the European Central Bank (ECB) is widely expected to raise interest rates this month.

Data released earlier in the day showed that the Eurozone Harmonized Index of Consumer Prices (HICP) rose 0.4% MoM in August, accelerating from the 0.2% increase recorded in July. Core HICP increased 0.2% after remaining flat in the previous month. ECB policymaker Gediminas Šimkus said on Tuesday, “It is clear that we should hike rates in September,” adding, “New projections are likely to move the rate path up a bit.”