Germany’s HCOB Services PMI Drops to 51.4 in August, with Input Prices Lower

According to the Flash Survey,

New business across the German services sector barely increased in August.
Firms also reported sharp falls in new export business orders.
Backlogs of work declined, forcing firms to reduce staffing levels amidst the weak demand environment.
Output price inflation accelerated, while input prices increased at the slowest pace since March 2021.

ECB Rate Cut Expectations

The input price and labor market subcomponents of the Flash survey may fuel speculation about a September ECB rate cut.

Weaker labor market conditions and downward input price trends could signal a softer inflation outlook. Input prices consider wages. Softer wages could reduce disposable income, and consumer spending, possibly dampening demand-driven inflation.

Nevertheless, investors should consider the Eurozone PMI numbers, which may have more impact on the ECB rate path. Economists expect the Eurozone’s HCOB Services PMI to remain at 51.9 in August.

An unexpected fall in the Services PMI, downward input price trends, and softer labor market conditions may bolster bets on a September rate cut.

EUR/USD Reaction to Private Sector PMIs

Before the private sector PMI release, the EUR/USD fell to a low of $1.11401 before climbing to a high of $1.11648.