The flash estimates for the August PMI readings in the euro area will be due tomorrow. And another set of relatively poor data could yet prove to be a drag for the euro in the days/weeks to come. The manufacturing sector is already well in recession and a slowing services sector as well is threatening to cause stagnant growth in the region during Q3.
While the ECB is still largely focused on the inflation mandate, policymakers cannot ignore economic developments as well. That especially as the Eurozone looks to be staring at a credit crunch right in the face.
For now, traders are pricing in roughly 68% odds of a 25 bps rate hike by the ECB for next month. The data tomorrow will likely have some impact on that one way or another. But markets will also stay guarded ahead of Lagarde’s appearance in Jackson Hole and more importantly, the inflation numbers that will come next week.
This article was written by Justin Low at www.forexlive.com.
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