Currency markets remained reluctant to take on clear direction today, though a mild risk-off undertone was evident in equities and broader risk sentiment. Euro and Dollar emerged as the mildly firmer currencies of the day, underpinned by strong Eurozone PMI data and steady remarks from Federal Reserve officials. Yet the overall tone stayed cautious, with most pairs confined to tight intraday ranges.
Euro’s support stemmed partly from solid PMI figures, which showed manufacturing and services combining to deliver the fastest growth in 15 months. Germany led the expansion in factory output, while France showed tentative stabilization after months of contraction. Even as foreign orders remain weak under tariff pressure, the resilience of intra-EU demand has reinforced the perception that the bloc is coping better than feared.
At the same time, incremental details on the U.S.–EU trade deal offered another modest tailwind. Washington confirmed it will impose 15% tariffs on most EU imports including autos, pharmaceuticals, and chips — a sharp reduction from earlier threats of 30%. Crucially, the administration pledged to roll back duties on cars and auto parts once Brussels enacts reciprocal tariff cuts. EU Trade Chief Maros Sefcovic said proposals will be tabled by the end of the month.
The tariff reprieve is significant: U.S. duties on European autos, previously as high as 27.5%, will be nearly halved. In parallel, Brussels committed to eliminate tariffs on all U.S. industrial goods and expand access for seafood and agricultural exports. More importantly, it reaffirmed plans for US 750 billion in U.S. energy purchases and US 600 billion of additional EU investment in American strategic sectors through 2028. Together, these commitments injected a degree of stability into transatlantic trade relations.
Still, Dollar’s support came less from trade optimism than from Fed commentary. Despite weaker July jobs data and large downward revisions to May and June payrolls, Atlanta Fed President Raphael Bostic and Kansas City Fed President Jeffrey Schmid maintained cautious stances. Both signaled little urgency to cut rates, stressing that inflation near 3% remains too high. Investors await further remarks from other officials at Jackson Hole, which could clarify whether September’s widely expected cut will be accompanied by signals for more aggressive easing.
In the overall currency markets, Swiss Franc continues to lead the weekly performance board, followed by Dollar and Yen. Notably, Yen has given back much of its early-week gains as risk hedging flows moderated. On the other end, commodity currencies are still under heavy pressure, with Kiwi and Aussie at the bottom. Sterling also struggled despite stronger services PMI data, leaving it the third weakest major of the week.
In Europe at the time of writing, FTSE is down -0.14%. DAX is down -0.31%. CAC is down -0.70%. UK 10-year yield is up 0.047 at 4.720. Germany 10-year yield is up 0.031 at 2.75. Earlier in Asia, Nikkei fell -0.65%. Hong Kong HSI fell -0.24%. China Shanghai SSE rose 0.13%. Singapore Strait Times rose 0.27%. Japan 10-year JGB yield rose 0.003 to 1.611.
Fed’s Schmid Cautions: No rush to ease without very definitive data
Kansas City Fed President Jeffrey Schmid, in a CNBC interview, stressed there was no urgency to cut rates. With inflation still hovering closer to 3% than 2% and the labor market in solid shape, Schmid said policymakers would need “very definitive data” before adjusting policy.
He argued that the “last mile” of returning inflation to target remains the hardest part and warned that lowering rates too soon could undermine public expectations, reigniting price pressures. “We got to be careful about what lowering short-term rates would do to the inflation mentality,” he noted.
Despite weaker jobs data in recent months, Schmid emphasized optimism among business contacts and questioned whether the current 4.25%–4.50% policy rate was significantly restricting growth. “I don’t know exactly what we are restricting,” he said.
Fed’s Bostic sticks to view of one cut this year
Atlanta Fed President Raphael Bostic reiterated that his outlook for monetary policy remains centered on just one rate cut this year, consistent with guidance he has offered since early 2025. While Bostic emphasized he is not “stuck on anything,” he noted that forecasts carry wide confidence bands in the current environment of heightened uncertainty.
He pointed out that inflation has been moving “sideways” in the 2.5–2.8% range for much of the past nine months, persistently above the Fed’s 2% goal. This suggests progress on disinflation has stalled, keeping policymakers wary of easing too early. At the same time, the unemployment rate remains historically low, though cracks in the labor market are beginning to appear.
Bostic acknowledged the downward revisions to May and June payrolls as a sign of “lot less robust job creation,” though he cautioned against reading too much into one data point.
US initial jobless claims rise to 235k vs exp 227k
US initial jobless claims rose 11k to 235k in the week ending August 16, above expectation of 227k. Four-week moving average of initial claims rose 4.5k to 226k.
Continuing claims rose 30k to 1972k in the week ending August 9, highest since November 6, 2021. Four-week moving average of continuing claims rose 7k to 1955k.
UK PMI composite climbs to 12-month high, fragile demand and job cuts temper optimism
The UK economy showed firmer momentum in August, with Composite PMI climbing from 51.5 to 53.0, its highest in a year. Services provided the bulk of the support, rising from 51.8 to 53.6, also a 12-month high, while manufacturing slipped further into contraction at 47.3, down from 48.0.
S&P Global’s Chris Williamson noted that the UK economy is enjoying its best pace of expansion since last summer, with the services sector driving activity. Manufacturing, though still weak, showed tentative signs of stabilization. However, demand environment remains both “uneven and fragile”, and businesses continue to shed staff at an “aggressive rate” amid pressure from rising costs.
The improved growth backdrop, alongside July’s stronger-than-expected inflation reading, reduces the likelihood of further BoE rate cuts this year. With the MPC split over the policy outlook, upcoming data on growth and inflation will be crucial in determining whether the central bank leans toward patience or resumes its easing path.
Eurozone PMI composite hits 15-month high, but foreign demand falters Under US Tariffs
Eurozone private sector activity gained modest momentum in August, with Composite PMI rising from 50.9 to 51.1, its highest level in 15 months. Manufacturing led the improvement, climbing from 49.8 to 50.5, a 38-month high. Services softened slightly from 51.0 to 50.7. Growth remains fragile, but the data signals that businesses are coping better than expected with the current trade and policy backdrop.
Hamburg Commercial Bank’s Cyrus de la Rubia noted that despite headwinds from U.S. tariffs and lingering uncertainty, the EU’s single market has helped cushion the blow, with domestic demand and tourism acting as stabilizers.
Manufacturing output has now expanded for six straight months, driven by Germany. France, previously a drag, showed signs of stabilization in both manufacturing and services. However, US trade policy continues to bite. Eurozone manufacturing foreign orders fell for the second month in a row, with Germany now also seeing declines after holding up earlier in the year.
While cost pressures in services remain an ECB concern, the steadiness in selling-price inflation provides “a bit of relief”.
Japan’s PMI manufacturing nears expansion at 49.9, but external demand raises sustainability concerns
Japan’s flash PMI data for August showed momentum improving, with the composite index rising slightly from 51.6 to 51.9. Manufacturing posted a surprise recovery, with output climbing back into expansion at 50.5 from 47.6, while the broader PMI Manufacturing rose to 49.9 from 48.9. However, services growth slowed, with the index easing to 52.7 from 53.6.
S&P Global’s Annabel Fiddes noted that the upturn was broad-based, led by a fresh rise in factory production alongside continued service-sector strength. Still, new orders in manufacturing remained weak, raising questions about how sustainable the rebound in factory output will be without stronger demand.
Foreign demand was a drag across both goods and services, leaving the recovery heavily reliant on domestic activity. At the same time, rising input costs squeezed firms’ margins as competitive pressures limited their ability to pass costs on to clients. Selling price inflation slowed to its weakest pace since October, underlining the profitability challenge for Japanese businesses.
Australia PMI composite rises to 54.9, growth broadening, inflation cooling
Australia’s private sector gained momentum in August, with both manufacturing and services showing stronger growth. Manufacturing PMI climbed to 52.9 from 51.3, while Services PMI improved to 55.1 from 54.1. As a result, Composite PMI rose to 54.9 from 53.8, its highest since April 2022, signaling a broadening recovery.
S&P Global’s Jingyi Pan noted that easier interest rates have supported domestic activity, while external demand is also beginning to revive. Export orders picked up, adding to optimism among Australian businesses, and sentiment strengthened notably through the month.
Price pressures, meanwhile, showed signs of easing. Output price inflation pulled back from July’s recent high, a shift that could help sustain demand in the months ahead. That combination of stronger demand and softer price growth points to a healthier balance in the economy and gives RBA space to assess policy moves more carefully in the coming months.
NZ trade swings back into deficit despite broad export gains
New Zealand’s trade balance flipped back into deficit in July, with imports outpacing exports despite solid overseas demand. Goods exports climbed 10% yoy to NZD 6.7 billion, but imports rose 2.6% yoy to NZD 7.3 billion, leaving a monthly deficit of NZD -578 million compared with expectation of NZD 70 million surplus.
Export performance was broadly positive across major partners. Shipments to the EU jumped 28% yoy, while sales to Japan rose 23%. Exports to the U.S. and China also advanced by 7.7% and 7.1% respectively. Australia remained steady with a 4.7% increase.
On the import side, gains were concentrated in the EU and U.S., up 22% yoy and 24% respectively. Purchases from China increased 6.9%, while imports from Australia ticked up by 2.7%. However, imports from South Korea slumped by a sharp -33%.
EUR/USD Mid-Day Outlook
Daily Pivots: (S1) 1.1623; (P) 1.1649; (R1) 1.1675; More…
EUR/USD is still bounded in consolidations in tight range below 1.1729 and intraday bias stays neutral. Further rally is expected as long as 1.1589 support holds. Above 1.1729 will bring retest of 1.1829 high. On the downside, however, firm break of 1.1589 will turn bias to the downside, and extend the corrective pattern from 1.1829 with another fall.
In the bigger picture, rise from 0.9534 long term bottom could be correcting the multi-decade downtrend or the start of a long term up trend. In either case, further rise should be seen to 100% projection of 0.9534 to 1.1274 from 1.0176 at 1.1916. This will remain the favored case as long as 1.1604 support holds.
