- EUR/USD faces challenges ahead of HCOB Purchasing Managers’ Index data from Eurozone and Germany.
- The US Dollar strengthened as yields on US Treasury bonds moved higher.
- French 30-year yields sit at 4.5%, highest since 2009, while German 30-year yields trade at 3.41%, their peak since 2011.
EUR/USD extends its losses for the second successive session, trading around 1.1620 during the Asian hours on Wednesday. HCOB Purchasing Managers’ Index (PMI) data from Eurozone and Germany will be eyed later in the day.
The EUR/USD pair depreciates as the US Dollar (USD) gains ground amid rising yields on US Treasury bonds, with the 2-year at 3.65% and the 10-year at 4.28% standing at the time of writing. Rising Treasury yields make US assets more attractive to global investors, hence capital inflows increase demand for USD.
However, market sentiment weakened after the US Court of Appeals for the Federal Circuit ruled that most of Trump’s tariffs were illegal, though they will remain in effect until October 14 pending a Supreme Court appeal.
Meanwhile, US Treasury Secretary Scott Bessent said on Tuesday that he expects the Supreme Court will approve Trump’s use of a 1977 emergency powers law to slap the tariffs on trading partners, and the administration has a backup plan if it does not. Trump, meanwhile, pledged to seek an “expedited ruling” from the Court.
The US Dollar faced challenges as the business activity in the US manufacturing sector contracted slightly in August. Institute for Supply Management’s (ISM) Manufacturing Purchasing Managers Index (PMI) improved to 48.7 from July’s 48.0 but falling short of expected 49.0 reading. Meanwhile, ISM Manufacturing Employment Index edged higher to 43.8 from 43.4 prior, while the Manufacturing Prices Paid, the inflation component, retreated to 63.7 from 64.8.
The US JOLTS Job Openings and the Fed Beige Book will be eyed later in the North American session. Traders will also likely observe upcoming labor market data this week, including ADP Employment Change, Average Hourly Earnings, and Nonfarm Payrolls for August. The key reports could shape the US Federal Reserve’s (Fed) policy decision in September.
The EUR/USD pair also faces challenges as the Euro (EUR) struggles on rising European government bond yields amid rising fiscal concerns. French 30-year yield stand at 4.5%, highest since 2009 and German 30-year yields stand at 3.41%, highest since 2011, at the time of writing.
Concerns over France’s debt burden are a central factor behind Prime Minister François Bayrou’s confidence vote scheduled for next week. Germany’s medium-term financial plan projects about €500 billion in net new borrowing through 2029 to support higher infrastructure and defense spending.
However, the downside of the Euro could be restrained as persistent Eurozone inflation reinforced the expectations that the European Central Bank (ECB) will keep interest rates unchanged at September’s meeting. Eurozone Harmonized Index of Consumer Prices (HICP) rose 2.1% YoY in August, came above both market expectations and the European Central Bank’s (ECB) 2.0% target.
