US ISM Services PMI improves to 54.4 in December

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Economic activity in the US service sector improved slightly in December, with the ISM Services PMI ticking higher to 54.4 from 52.6 in November, surpassing analysts' expectations.

ISM Services PMI increased to 54.4 in December, surpassing consensus.
The US Dollar keeps its slightly bearish stance on Wednesday.

Economic activity in the US service sector improved slightly in December, with the ISM Services PMI ticking higher to 54.4 from 52.6 in November, surpassing analysts' expectations.

Further poll results found that the Prices Paid Index—a crucial barometer of inflation—eased to 64.3 from 65.4, while the Employment Index increased to 52.0 from 48.9, indicating a decent pick-up in labour market conditions in the service sector. Finally, the New Orders Index improved to 57.9 from 52.9.

Market reaction

The Greenback remains slightly offered following the release, as investors continue to digest the weaker-than-expected employment data from the ADP report ahead of Friday’s crucial NFP figures. That said, the US Dollar Index (DXY) reverses Tuesday’s gains and revisits the 98.50 region, maintaining the weekly recovery well in place.

GDP FAQs

What is GDP and how is it recorded?

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.

How does GDP influence currencies?

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.

How does higher GDP impact the price of Gold?

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.