USD Weakens Following Mixed Manufacturing Data; EUR/USD Eyes 1.1650 Support Amid NFP Anticipation

US Dollar loses momentum as August ISM Manufacturing PMI signals ongoing sector contraction - Headline index sits at 48.7, marking the sixth consecutive month below 50 - Employment and production figures deteriorate while new orders show tentative recovery signs

The Euro has staged a modest recovery against the US Dollar on Tuesday, building on weakness in the Greenback that emerged after the release of August’s Institute for Supply Management (ISM) Manufacturing Purchasing Managers’ Index. Currently, EUR/USD is hovering around 1.1670 during North American trading hours, bouncing away from its session floor of 1.1613. Despite this rebound, the currency pair remains trapped in a tight consolidation band spanning 1.1600 to 1.1720, reflecting underlying market caution as traders await Friday’s critical US Nonfarm Payrolls (NFP) employment report.

Manufacturing Contraction Persists Despite Demand Stabilization

August’s ISM Manufacturing PMI came in at 48.7, marginally improving from July’s 48.0 reading but remaining submerged below the 50 expansion threshold for a sixth straight month. This persistent contraction in manufacturing activity underscores ongoing economic fragility in the sector.

The index components tell a mixed story:

• New Orders climbed to 51.4, marking the first expansion signal in seven months and suggesting that buyer interest may be tentatively reviving
• Employment Index deteriorated to 43.8, exposing substantial labor market weakness within manufacturing
• Production Index slipped to 47.8, keeping output firmly in contractionary territory
• Prices Paid eased to 63.7 from 65.3, though persistent elevation indicates input cost inflation remains a structural concern

While the surge in new orders provides a glimmer of demand recovery, the simultaneous deterioration in production and employment suggests manufacturers are not yet confident enough to ramp up activity comprehensively.

Greenback Softens as Safe-Haven Demand Cools

The US Dollar Index (DXY), which measures the currency’s strength against six major peers including EUR and other leading forex pairs, retreated toward the 98.00 level after climbing to 98.60 earlier during European trading. This pullback reflects investors’ reassessment of economic momentum following the mixed PMI signals.

US Treasury yields have compressed in parallel. The benchmark 10-year yield has edged toward 4.27%, while the 30-year has descended to approximately 4.96%, as market participants adopt a more cautious stance ahead of labor market data releases.

Currency Momentum: Euro’s Relative Strength

Among major currency pairs, the Euro demonstrated the strongest appreciation against the British Pound during this session. The broader currency matrix reveals EUR maintaining positive momentum against most major counterparts, with GBP-based pairs showing the most pronounced weakness. This cross-currency strength reflects the diverging economic narratives between the eurozone and other developed economies.

What’s Next: NFP Takes Center Stage

With the manufacturing sector showing persistent weakness and employment conditions deteriorating, all eyes now turn to Friday’s Nonfarm Payrolls report. A softer-than-expected jobs number could further weaken the Dollar and push EUR/USD higher, while a robust employment surprise would likely stabilize the Greenback and test the lower bounds of the current trading range. The market remains in a holding pattern, with traders reluctant to commit significantly ahead of this key labor market gauge.