The Euro (EUR) recovered modestly against the US Dollar (USD) on Tuesday, trimming earlier losses as the Greenback pulled back from intraday highs following the release of S&P Global Purchasing Managers Index (PMI) data. At the time of writing, EUR/USD traded near 1.1590, down about 0.20% on the day after hitting an intraday low of 1.1567. The US Dollar Index (DXY) held near 99.30, easing from around 99.50 earlier in the session [1].
The latest PMI releases, the first since the escalation of the Middle East conflict, indicated a broad-based slowdown in business activity across both the Eurozone and the United States, reinforcing concerns about a global economic slowdown. In the US, preliminary S&P Global PMI data showed the Composite PMI fell to 51.4 from 51.9, and the Services PMI dropped to 51.1 from 51.7, both marking an 11-month low. However, manufacturing remained relatively resilient, with the PMI rising to 52.4 from 51.6 [1].
Eurozone PMI data also pointed to a sharp loss of momentum, with the Composite PMI declining to 50.5 from 51.9, a 10-month low, and the Services PMI easing to 50.1 from 51.9. Manufacturing offered some support, with the PMI rising to 51.4 from 50.8, its highest level in nearly four years [1]. S&P Global Chief Business Economist Chris Williamson commented that both surveys highlight growing stagflation risks, noting that the US data signal "an unwelcome combination of slower growth and rising inflation," while the Eurozone PMI is "ringing stagflation alarm bells" due to higher energy costs linked to the Middle East conflict, which are pushing prices higher and weighing on demand and confidence [1].
The data reinforce the market narrative that the Middle East conflict is starting to weigh on the global economy and complicate the outlook for central banks. As tensions escalate, markets now expect the Federal Reserve (Fed) to hold rates through 2026, compared to earlier expectations of easing, while fully pricing in two rate hikes from the European Central Bank (ECB), which was previously expected to remain on hold. ECB Governing Council member Martins Kazaks stated, "rate hikes may be needed if inflation spreads from energy," adding that "bets on two hikes are plausible, we’ll see if it happens" [1].
CONCLUSION
The latest PMI data from both the US and Eurozone highlight growing stagflation risks and reinforce concerns about a global slowdown, with the Middle East conflict adding to economic uncertainty. Market expectations have shifted, with the Fed now seen holding rates through 2026 and the ECB potentially raising rates twice. The EUR/USD pair has pared losses as the US Dollar eased, reflecting cautious sentiment amid heightened economic and geopolitical risks.