EUR/USD falls from around parity on stronger US dollar

The EUR/USD pair fell as speculation on Fed’s intentions regarding interest rate pace has decreased. The EUR/USD is erasing some of Tuesday’s gains as US T-bond yields are seen rising again, while US Services PMI data, even though slowed, is still at expansionary territory. At the time of writing, the EUR/USD is trading at 0.9865 after hitting a daily high closer to parity.

Market sentiment deteriorated after US economic data has revealed during the day that private payrolls increased by 208K, as depicted by the ADP National Employment for September. Later in the day, economic activity in the Services sector showed mixed readings, though the ISM flashed that the economy is still expanding at a slower pace.

The S&P Global Services and Composite PMIs came at 49.3 and 49.5, respectively. Nevertheless, the ISM Non-Manufacturing PMI dived to 56.7, less than August’s 56.9 but exceeded estimations of 56.0. Given the backdrop, the US economy stayed resilient amidst an aggressive tightening cycle by the US Federal Reserve, therefore bolstering the dollar.

The pair dipped 130 pips on the day towards current exchange rates. In the meantime, the US 10-year Treasury bond yield is rising 16 bps, up at 3.781%, a headwind for the EUR/USD.

At the same time, the US Department of Commerce reported that the US Trade deficit narrowed by 4.3% to $67.4 billion in August, the lowest since May 2021.

On the European front, the Eurozone reported that business activity slowed, as shown by the S&P Global PMI survey, further cementing the case of the EU’s getting into a recession as a stagflation scenario looms. Services activity weakened in Germany, Italy, and Spain, except for France, though it grew weaker than estimated.