EUR/USD: Is Germany in Service Sector Stagflation?

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Summary:

  • German PMI services plunge from 52.3 to 47.3, while manufacturing PMI improves slightly from 38.8 to 39.1.
  • Economists warn about the possibility of stagflation in Germany's services sector, requiring ECB to consider rate hikes.
  • Eurodollar chart shows Euro weakening against the US dollar, with implications tied to the upcoming Jackson Hole symposium.
  • Germany's position as the Eurozone's largest economy intensifies the impact of these economic developments.


More dire German economic data has emerged with PMI services falling sharply, indicating a potential stagflation scenario. Despite a small improvement in manufacturing PMI, the services sector may not be able to counteract the decline in German manufacturing.


PMI Services and Manufacturing Data

There has been a notable decline in Germany's PMI services, dropping from 52.3, indicating expansion, to 47.3, a nine-month low. The PMI composite also plummeted from 48.5 to 44.7, marking a 39-month low. On the other hand, German manufacturing PMI showed a slight increase from 38.8 to 39.1 in August, but manufacturing output fell to 39.7, a 39-month low.

Risk of Stagflation

Economists are raising concerns about the possibility of stagflation in Germany's services economy. Stagflation, characterized by economic contraction and rising prices, poses challenges for the European Central Bank (ECB), which may need to raise rates to control inflation.

Eurodollar Chart and Jackson Hole Symposium

As the Euro weakens against the US dollar, analysts are observing the Eurodollar chart closely. The 200-day moving average is a critical support level. The upcoming Jackson Hole symposium adds to the market uncertainty. Traders are advised to watch the 106.35 price target, with further potential declines to 105.16.

Impact on the German Economy

Given that Germany is the largest economy in the Eurozone, its economic performance significantly influences the region. However, the German economy might face the challenge of higher interest rates due to the ECB's need to counter rising prices.


The combination of declining PMI services, potential stagflation, and the Euro's performance raises concerns for Germany's economic outlook, especially as the ECB grapples with its policy decisions.

Location: London, UK

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