By Noam Bennaiche
The US Dollar is pushing higher this morning, with the Dollar Index climbing above 100.70 to its strongest level since late July. Markets continue to price in a hawkish Federal Reserve following last week’s rate hike and the prospect of another 25-basis-point move before year-end. Chair Warsh’s silence on the future policy path is also helping to sustain the Dollar’s underlying strength.
Sterling has softened against the Dollar this week. The Pound’s brief recovery after the Bank of England held rates has since faded. The BoE voted 6–3 to maintain the interest rate at 3.75% last week. The Fed hiked rates the previous day, while the ECB had already raised rates to 2.50% the week before. The BoE’s guidance “screens as less hawkish than the ECB’s”. With the UK’s Autumn Budget approaching, fiscal concerns are also re-emerging as a secondary headwind. Against the Euro, Sterling is broadly stable but below mid-July’s highs.
Today’s session is dominated by flash PMI releases across Germany, the Eurozone, the UK and the US. These are the first major data releases of the post-central-bank week, with markets watching for signs that tighter monetary policy is beginning to weigh on activity.
Eurozone flash PMI data has delivered a notably positive surprise. Germany’s manufacturing PMI reached 54.3 in September, its strongest reading since 2022, supported by defense spending, infrastructure investment and recovering export orders. This provides fundamental support for the Euro. Meanwhile, the Eurozone services PMI is expected to edge lower to around 51.4 from 51.6 in August, reflecting continued consumer caution, although the broader picture still indicates expansion.
In the UK, manufacturing PMI came in at 51.7, slightly above the 51.5 forecast, but signaling the slowest growth in five months. Services PMI rose to 52.5 from 52.0, offsetting the weaker factory reading. The mixed data has not materially shifted expectations for November’s BoE decision, with swaps still implying around 100 basis points of further tightening over the next twelve months.
US flash PMIs are due later this afternoon, with manufacturing expected at 53.6 and services at 56.0. Both would indicate solid expansion and, if confirmed, could strengthen the case for a December Fed hike.
Looking ahead, Sterling will turn its attention to UK employment data and October CPI inflation, both key inputs into the November BoE decision, now the most important scheduled event for GBP this year. A hike to 4.00% is increasingly priced in as the base case, meaning data that reinforces or challenges this expectation could trigger significant moves in GBP/EUR.
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Wednesday, 23rd September — Key Events
EUR — Germany Flash Manufacturing PMI (Sep)
GBP — UK Flash Manufacturing PMI (Sep)
GBP — UK Flash Services PMI (Sep)
USD — US Flash Manufacturing & Services PMI (Sep)