EUR/USD recovers modestly as US Dollar softens on mixed ISM Manufacturing PMI

• EUR/USD rebounds as the US Dollar loses traction after the ISM PMI release.
• Headline PMI rises to 48.7 but stays in contraction for the sixth month.
• Employment and production indices weaken, underscoring fragile conditions

The Euro (EUR) trims some of its earlier losses against the US Dollar (USD) on Tuesday, as the Greenback loses momentum following the release of mixed US manufacturing Purchasing Managers' Index (PMI) data.

At the time of writing, EUR/USD is trading near 1.1670 in the American session, modestly rebounding from an intraday low of 1.1613. Price action, however, remains confined within a narrow range between 1.1600 and 1.1720, underscoring market indecision ahead of Friday's highly anticipated US Nonfarm Payrolls (NFP) report.

ISM Manufacturing PMI: Headline stays in contraction, new orders surprise higher

The Institute for Supply Management's (ISM) Manufacturing PMI for August came in at 48.7, slightly above July's 48.0 but still below the 50 threshold for a sixth consecutive month, confirming ongoing contraction in the sector.

• New Orders: rose sharply to 51.4, signaling expansion for the first time in seven months.
• Employment Index: slipped to 43.8, highlighting ongoing labor market weakness in the sector.
• Production Index: dropped to 47.8, keeping output in contraction territory.
• Prices Paid: eased slightly to 63.7 from 65.3, but remain elevated, pointing to lingering input cost pressure.

The data suggest that while demand is starting to stabilize, production and hiring remain under strain. The improvement in new orders contrasts with broader weakness, hinting at tentative signs of recovery but no clear turnaround yet.

Market reaction: US Dollar softens, yields edge lower

The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, fell back toward the 98.00 handle after briefly spiking to 98.60 earlier in the European session as investors reacted to the mixed PMI signals. In tandem, US Treasury yields edge lower, with the 10-year slipping toward 4.27% and the 30-year easing to around 4.96% reflecting cautious sentiment ahead of upcoming labor market data.