EUR/USD extended its losses for the third consecutive session, trading around 1.1600 during European hours on Wednesday, following the release of February’s HCOB Purchasing Managers’ Index (PMI) data from Germany and the Eurozone [1]. The HCOB Germany Services PMI reached a four-month high of 53.5 in February, slightly above market expectations of 53.4 and up from 52.4 in January. The Composite PMI for Germany improved to 53.2 from 53.1 previously [1]. For the Eurozone, the Composite PMI rose to a three-month high of 51.9 in February, up from 51.3 in January, while the Services PMI climbed to a two-month high of 51.9 from 51.6, indicating faster output growth compared to the start of the year [1].
Despite these positive PMI readings, the EUR/USD pair depreciated as the US Dollar remained stronger. This strength was attributed to fading expectations of imminent rate cuts from the Federal Reserve, with investors largely expecting the US central bank to keep interest rates unchanged until summer, despite calls from US President Donald Trump for lower borrowing costs [1]. Higher energy prices, driven by escalating tensions in the Middle East, have contributed to inflation concerns and prompted markets to scale back bets on near-term policy easing [1].
The US Dollar also benefited from increased safe-haven demand amid the ongoing Middle East conflict. US President Donald Trump warned that the escalation could lead to equally hardline leadership in Iran, underscoring uncertainty surrounding the conflict’s outcome [1].
The European Central Bank (ECB) remains focused on its mandate to maintain price stability, with its primary tool being the adjustment of interest rates. Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is closely watched, as inflation above the ECB’s 2% target could prompt rate hikes to control price levels [1].
CONCLUSION
EUR/USD remained subdued near 1.1600 despite improved PMI data from Germany and the Eurozone, as the US Dollar strengthened on diminished expectations for Federal Reserve rate cuts and increased safe-haven demand. Market sentiment is cautious, with inflation concerns and geopolitical tensions influencing investor outlook. The ECB’s focus on price stability and upcoming US ISM Services PMI data may further impact currency movements.