- The US ISM Services PMI surpassed consensus in October.
- The US Dollar clings to its daily gains on Wednesday.
Data from the Institute for Supply Management (ISM) showed the Services PMI rose to 52.4 in October, up from 50.0 in the previous month and exceeding analysts’ forecasts of 50.8.
Meanwhile, the Prices Paid Index, which tracks inflation, rose to 70.0 from 69.4, the Employment Index ticked a tad higher to 48.2 from 47.2, and the New Orders Index went up to 56.2, from 50.4.
Market reaction
The Greenback accelerates its gains in the wake of the release of the US ISM Services PMI on Wednesday, motivating the US Dollar Index (DXY) to hit fresh highs in the 100.30-100.40 band, extending its current strong recovery.
US Dollar Price Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.06% | 0.02% | 0.42% | 0.27% | -0.01% | 0.15% | 0.18% | |
| EUR | -0.06% | -0.06% | 0.37% | 0.21% | -0.07% | 0.11% | 0.11% | |
| GBP | -0.02% | 0.06% | 0.42% | 0.25% | -0.03% | 0.15% | 0.16% | |
| JPY | -0.42% | -0.37% | -0.42% | -0.15% | -0.42% | -0.27% | -0.24% | |
| CAD | -0.27% | -0.21% | -0.25% | 0.15% | -0.28% | -0.12% | -0.09% | |
| AUD | 0.00% | 0.07% | 0.03% | 0.42% | 0.28% | 0.17% | 0.17% | |
| NZD | -0.15% | -0.11% | -0.15% | 0.27% | 0.12% | -0.17% | 0.01% | |
| CHF | -0.18% | -0.11% | -0.16% | 0.24% | 0.09% | -0.17% | -0.01% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
This section below was published as a preview of the US ISM Services report for October at 08:00 GMT.
- The US ISM Services PMI is expected to edge higher to 50.7 in October, indicating modest expansion in the sector.
- Investors will pay attention to the employment and inflation components of the PMI survey.
- EUR/USD technical outlook suggests the bearish bias remains intact in the near term.
The Institute for Supply Management (ISM) is scheduled to release the October Services Purchasing Managers’ Index (PMI) on Wednesday. The report, which is a well-trusted measure of business performance and is widely seen as a leading indicator of economic activity, is expected to reflect a mild expansion in the services sector.
Because of the postponement and cancellation of key macroeconomic data releases due to the ongoing US government shutdown, the ISM Services PMI report could significantly influence the valuation of the US Dollar (USD) in the near term.
What to expect from the ISM Services PMI report?
Markets expect the publication to show a modest expansion in the services sector’s business activity, with the headline ISM Services PMI edging higher to 50.7 in October from 50 in September.
Previewing the report, TD Securities analysts said, “We look for the ISM surveys to move higher in October, following mostly disappointing outcomes in the summer.”. “ISM services should partially walk back its 2pt September drop. Respondent views and the ISM's employment components will garner attention,” they added.
In September, the Employment Index came in at 47.2 and remained below 50 for the fourth consecutive month, reflecting a steady decline in the service sector’s payrolls. Following the October policy meeting, Federal Reserve (Fed) Chairman Jerome Powell acknowledged that the job creation was low but added that they did not see the weakness in the job market accelerating. Regarding the interest rate outlook, Powell said that another rate cut in December was “far from assured.”
Meanwhile, the inflation component of the PMI survey, the Prices Paid Index, remained above 69 for three consecutive months, reflecting strong input inflation for the sector.
According to the CME FedWatch Tool, markets are currently pricing in around a 67% probability of a 25-basis-point (bps) Fed rate cut in December.
GDP FAQs
A country’s Gross Domestic Product (GDP) measures the rate of growth of its economy over a given period of time, usually a quarter. The most reliable figures are those that compare GDP to the previous quarter e.g Q2 of 2023 vs Q1 of 2023, or to the same period in the previous year, e.g Q2 of 2023 vs Q2 of 2022. Annualized quarterly GDP figures extrapolate the growth rate of the quarter as if it were constant for the rest of the year. These can be misleading, however, if temporary shocks impact growth in one quarter but are unlikely to last all year – such as happened in the first quarter of 2020 at the outbreak of the covid pandemic, when growth plummeted.
A higher GDP result is generally positive for a nation’s currency as it reflects a growing economy, which is more likely to produce goods and services that can be exported, as well as attracting higher foreign investment. By the same token, when GDP falls it is usually negative for the currency. When an economy grows people tend to spend more, which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation with the side effect of attracting more capital inflows from global investors, thus helping the local currency appreciate.
When an economy grows and GDP is rising, people tend to spend more which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold versus placing the money in a cash deposit account. Therefore, a higher GDP growth rate is usually a bearish factor for Gold price.
When will the ISM Services PMI report be released and how could it affect EUR/USD?
The ISM Services PMI report is scheduled for release at 15:00 GMT on Wednesday.
In case the headline PMI comes in above 50 as expected, and there is a noticeable recovery in the Employment Index toward or above 50, investors could turn reluctant to bet on a Fed rate cut in December. In this scenario, the USD could continue to gather strength, causing EUR/USD to push lower.
Conversely, a disappointing PMI print, combined with either a weak Employment Index figure or a significant decline in the inflation component, could revive expectations for further policy easing and weigh on the USD, allowing EUR/USD to stage a rebound.
Eren Sengezer, FXStreet European Session Lead Analyst, offers a brief technical outlook for EUR/USD: “EUR/USD’s near-term technical outlook points to a buildup in bearish momentum. The Relative Strength Index (RSI) indicator on the daily chart continues to decline toward 30, while the 20-day Simple Moving Average (SMA) extends its slide after completing a bearish cross with the 50-day and the 100-day SMA.”
“On the downside, 1.1400 (static level) aligns as an interim support level before 1.1320 (200-day SMA) and 1.1050 (Fibonacci 50% retracement of the January-September uptrend). Looking north, resistance levels could be spotted at 1.1600 (20-day SMA), 1.1670 (50-day SMA, 100-day SMA) and 1.1800 (static level, round level).”
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
