Euro Zone's Deepening Economic Gloom Fuels Bets on ECB's September Pause

Euro zone business activity declined more than expected in August, with a sharp slide in Germany's service sector. The European Central Bank (ECB) faces a dilemma as it aims to control inflation without causing a recession. Economists predict that the ECB will pause interest rate hikes in September, despite elevated inflation. However, a further rate increase by the end of the year remains possible. The PMI data indicates a decline in the bloc's services industry for the first time this year, while manufacturing output continues to contract. The ECB's growth optimism will be tested by the sharp drop in PMI data. Euro zone government bond yields and the euro fell after the data release, as traders speculated that the ECB may pause its interest rate hiking campaign.