1.12 against US Dollar: Euro expected to drift gradually lower – Danske Bank

Around 1.12, EUR/USD faces a gradual decline in Danske Bank strategists' view. Weaker-than-forecast euro area Purchasing Managers' Index (PMI) readings suggest growth momentum is easing. FX markets are also focused on the forthcoming rate decisions from the Federal Reserve (Fed), European Central Bank (ECB) and Bank of Japan (BoJ).

1.12: Bank expects EUR/USD to edge lower

"In the euro area, the flash PMIs fell slightly more than expected in October but continue to point to decent growth at the start of Q4 despite somewhat softer momentum. The composite PMI fell to 51.9 (cons: 52.7, prior: 53.1), similar to the levels in July and August. Manufacturing declined marginally to 52.4 (cons: 52.8, prior: 52.9), while services fell significantly to 51.7 (cons: 52.5, prior: 53.0)."

"The service price indices continued to show limited spillovers from energy prices as both output and input fell slightly in October. In manufacturing, input costs rose more strongly again, while output price growth remained stable. With growth still decent and signs of limited pass-through from energy costs to underlying inflation, the report supports the ECB's gradual hiking approach, with a stocktaking meeting on Thursday and the next hike in December."

"For the rest of the week, focus turns to interest rate decisions from the Fed on Wednesday, the ECB on Thursday and the Bank of Japan on Friday, where we expect all three to keep interest rates unchanged before resuming rate hikes later this year. "

"Data highlights include US Q3 GDP on Thursday and inflation data for the big euro area economies as well as Q3 GDP data for the whole area on Friday."

"EUR/USD seems to have taken a breather around 1.12 for now, but we expect the cross to move gradually lower from here."

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