Euro Rally as Markets Weigh ECB, Federal Reserve Policy Gap
FX market – The euro traded just above $1.17, staying close to last month’s four-year high of $1.192, as markets weighed the widening policy gap between the European Central Bank (ECB) and the Federal Reserve (Fed).
The ECB, and US Federal Reserve interest rate policy choice impacted Euro, and US dollar trading direction amidst fluctuating economic data. The euro area economy continued its expansionary trend at the end of the third quarter, with the pace of growth even ticking slightly higher to its strongest since May 2024.
The upturn was again a muted one as demand barely improved and employment levels decreased. A pick-up in confidence for the first time since June was nevertheless recorded, while input cost and output charge inflation rates eased.
The seasonally adjusted Hamburg Commercial Bank (HCOB) Manufacturing PMI Output Index and the HCOB Services PMI Business Activity Index – increased for the fourth month in a row to 51.2 in September, from 51.0 previously, signalling a further gradual acceleration in output growth across the eurozone private sector.
Additionally, the headline measure rose to its highest level since May 2024. Germany was central to the broader pick-up in growth, with its respective Composite PMI Output Index rising to a 16-month high and indicating a moderate expansion.
Spain saw the strongest increase in private sector business activity during September.Moderate growth was registered in Ireland and Italy, making France the outlier across the currency bloc as output shrank at a faster pace than in August.
Eurostat data confirmed Eurozone inflation quickened to 2.2% in September, up from 2.0% in August and slightly above the ECB’s mid-point target, while Vice President Luis de Guindos reiterated that current rates remain “adequate” and decisions will be taken “meeting by meeting”, signalling little appetite for imminent easing.
The euro has maintained an uptrend in the forex market.In contrast, the US dollar weakened as the Fed is expected to deliver back-to-back 25 bps cuts in its final two meetings of the year.Sentiment worsened after ADP data revealed an unexpected decline in private-sector employment, adding to concerns over growth.
Details showed that private sector employment in the US declined by 32,000 in September and annual pay was up 4.5% on a yearly basis, the Automatic Data Processing (ADP) reported on Wednesday.
This reading followed the 3,000 decrease (revised from a 54,000 increase) reported in August and came in below the market expectation of 50,000.
Assessing the survey’s findings, “Despite the strong economic growth we saw in the second quarter, this month’s release further validates what we’ve been seeing in the labor market, that US employers have been cautious with hiring,” said Nela Richardson, chief economist, ADP.
Analysts said recent employment reports have raised the alarm bell, pointing to an economic slowdown and putting into question the theory of US economic exceptionalism.
Based on market temperature, investors are bracing for potential fallout from what would be the first US government shutdown in seven years.#Euro Rally as Markets Weigh ECB, Federal Reserve Policy Gap Wema Bank YTD Return Falls Below 98% over Selloffs
