- EUR/USD collapsed more than 100 pips after the US ISM missed the street’s forecasts but remained at expansionary territory at 53.0
- The greenback got bolstered by a counter-cyclical move, meaning that bad US data related to growth could lift the US dollar.
- EU’s inflation rose above 8.5% YoY, in line with France, Spain, and Germany’s figures.
The EUR/USD plunges as the second half of 2022 begins, breaking on its way south below the 1.0400 mark, reaching a fresh two-week high amid increasing concerns shifting towards economic growth, which now appears to be dented by an aggressive tightening of global central banks. At the time of writing, the EUR/USD is trading at 1.0396.
US ISM Manufacturing missed expectations, but the greenback rose
Sentiment remains dismal, with global equities falling. Meanwhile, the US ISM Manufacturing PMI fell below expectations to a two-year low as new orders contracted. The US Dollar, struck by a counter-cyclical move, rose on the report and hit a two-week high around 105.635 but retraced some towards 105.490. That was a headwind for the EUR/USD extending its losses, despite a hotter-than-expected EU inflation report.
Timothy Fiore, the ISM Manufacturing Business Survey Committee chair, said that manufacturing growth was “held back by supply chain constraints.” Fiore added, “Prices expansion slightly eased for a third straight month in June, but instability in global energy markets continues. Sentiment remained optimistic regarding demand, with three positive growth comments for every cautious comment. Panelists continue to note supply chain and pricing issues as their biggest concerns.”
Earlier during the European session, the Euro area reported June’s inflation, which rose 8.6% YoY, beating estimations, while the core readings expanded by 3.7% YoY, lower than foreseen. The previous report shows the high inflationary pressures reported by France, Span, and Germany, though the downtick in core figures offers a ray of hope that inflation may be close to its peak.
In the meantime, US Treasury yields are slumping sharply as investors’ focus shifted toward growth. Now that central banks are trying to tame inflation, financial analyst chatter begins to assess if the US Federal Reserve would achieve a soft landing, meaning avoiding a recession. Per the bond market reaction, sending 2s, 5s, and 10-year yields tumbling more than ten basis points illustrates that investors expect a less aggressive Fed, with money market futures expectations waiting for the first rate cut by the end of Q3 2023.