US recap: Dollar’s PMI troubles lift EUR/USD from 20-year low

Aug 23 (Reuters) – The dollar index fell on Tuesday, tumbling from the brink of July’s 20-year peak of 109.29 after data showed US services PMI slid further into contraction and new home sales plunged, raising questions about the future of aggressive Fed tightening.

Caution ahead of the Fed Chair Jerome Powell’s Jackson Hole speech and PCE data limited the dollar’s descent, but the damage was done.

The dollar retreat was a reprieve for EUR/USD, which had earlier struck a 20-year low at 0.99005 on EBS following recessionary euro zone PMI data.

Shorts covered after EUR/USD held above the 0.9900 level, but its rebound ran out of steam at 1.0018.

ECB board member Fabio Panetta said the ECB must be prudent with rate hikes as recession risk is rising nF9N2Z000P.

Treasury yields and the dollar rebounded in late trading with the market unwilling to bet against the Fed raising rates by about 125bp by year-end, as a September hike of 50bp or 75bp remains a toss-up.

In addition to this week’s events, August non-farm payrolls, CPI, and retail sales reports will add to the data set before the Sept. 21 Fed meeting. Fed speakers have gone out of their way since the last meeting to emphasize their focus on taming inflation.

GBP/USD gained 0.46%, reversing most of its early losses down to 1.1718, its lowest low since March 2020’s pandemic plunge. UK data were also dreary, but markets see the BoE potentially overtaking the Fed in the rate-hike race.

USD/JPY was down 0.48%, after a fall from early 137.705 EBS session highs to post-US data miss 135.82 lows that drew in dip buying ahead of Friday’s lows and key converged 30- and 50-day moving averages. Its outlook hangs in the balance ahead of Jackson Hole.

The Canadian and Australian dollars gained about 0.75 and 0.6%%, largely on the US data misses, giving back only a modest portion of their gains.

AUD/USD found support for a third consecutive session by the 61.8% Fibo of the July-August rise at 0.6856.

Bitcoin was little changed after last week’s beating.

Wednesday features US durable goods orders and pending homes sales. There will also be some attention on Ukraine’s Independence Day, which some worry could trigger a Russian military response.

Oil prices surged on OPEC+ perhaps looking to cut production, while natural gas prices fell back from Monday’s extreme highs.

(Editing by Burton Frierson; Randolph Donney is a Reuters market analyst. The views expressed are his own.)