EUR/USD plummets below 0.9920 post upbeat US ISM/Jobs data justify Fed 75 bps hike

• EUR/USD collapses almost 1% after upbeat US economic data.
• The US ISM Manufacturing PMI shows the US economy remains in expansion territory.
• Money market futures odds of a 75 bps rate hike by the Fed lie at 75%.

EUR/USD breaks below parity, extending its losses after hitting on Wednesday a weekly high at 1.0079, but better-than-expected US S&P Global and ISM Manufacturing PMI further cement the case for a Fed’s jumbo 75 bps rate hike in the September meeting.

The EUR/USD opened near the highs of the day at 1.0050s but dived below the parity on the release of upbeat US economic data, which put recession fears in the backseat. Therefore, the EUR/USD trades around the day’s lows at 0.9910s, below its opening price.

EUR/USD plunges on goodish US economic data

Risk aversion keeps global equities tumbling. The US ISM Manufacturing report for August came aligned with July’s figure at 52.8, topping the street’s estimates of 51.9- Even though the data was positive, it’s the second lowest reading since June 2020. The Price Index sub-component edged 7.5 percentage points lower, to 52.5 from 60, portraying the effect of the Federal Reserve tightening policy.

Timothy R. Fiore, Chair of the ISM, “The US manufacturing sector continues expanding at rates similar to the prior two months,” and commented that new orders returned to expansion levels. He added that companies continued to hire at strong rates in August, with few indications of lay-offs.

Coincidentally, the US Initial Jobless Claims for the week ending on August 27 rose by 232K, lower than estimates of 248K, as the Department of Labor reported.

For two consecutive days, US employment data reinforces the Fed’s thesis that the US, even though in a technical recession, as shown by the GDP, the economy is strong. Wednesday’s JOLTs report, with vacancies above 11 million, alongside unemployment claims diminishing and ISM Manufacturing PMI hiring comments, could be a prelude to a solid US Nonfarm Payrolls report on Friday.

On Friday, the US Bureau of Labor (BLS) is expected to unveil additional employment data. Economists predict that the economy will add 298K jobs, and the Unemployment Rate will remain at 3.5%.

Meanwhile, expectations for a 75 bps rate hike in the September Federal Reserve monetary policy meeting pointed to a 75% chance of such an increase.

During the European session, most European countries’ Manufacturing PMIs revealed by S&P Global were in contractionary territory, except for France. German Retail Sales YoY exceeded estimates of -6.6%, dropped by -2.6%, while the EU’s unemployment rate was unchanged.

What to watch

The EU’s economic docket will feature the German Trade Balance alongside the common bloc Producer Price Index (PPI). On the US front, the US Nonfarm Payrolls report for August, alongside Unemployment Rate, will shed some light on the direction of the EUR/USD.

EUR/USD Key Technical Levels