Fresh data from the Institute for Supply Management (ISM) showed the Services PMI improving a tad to 54.1 in July from 54 in the previous month, coming in short of expectations at 54.5 and signaling some marginal pickup of momentum in the sector.
Inflation pressures gathered traction, with the Prices Paid Index edging higher to 70.3 from 67.7. Hiring conditions are still soft, with the Employment Index falling to 47.4 from 51.2. Meanwhile, new business picked up some momentum, with the New Orders Index increasing to 57.2 from 55.1.
Market reaction
The Greenback remains well offered midweek, motivating the US Dollar Index (DXY) to keep business below the psychological 100.00 threshold and extending its downward trend for the second straight day.
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 New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.13% | -0.15% | -0.14% | -0.14% | -0.13% | 0.26% | -0.11% | |
| EUR | 0.13% | -0.02% | -0.04% | -0.02% | -0.01% | 0.37% | 0.01% | |
| GBP | 0.15% | 0.02% | 0.00% | 0.01% | 0.00% | 0.40% | 0.02% | |
| JPY | 0.14% | 0.04% | 0.00% | 0.01% | 0.03% | 0.41% | 0.04% | |
| CAD | 0.14% | 0.02% | -0.01% | -0.01% | 0.01% | 0.43% | 0.03% | |
| AUD | 0.13% | 0.00% | -0.01% | -0.03% | -0.01% | 0.39% | -0.01% | |
| NZD | -0.26% | -0.37% | -0.40% | -0.41% | -0.43% | -0.39% | -0.36% | |
| CHF | 0.11% | -0.01% | -0.02% | -0.04% | -0.03% | 0.00% | 0.36% |
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 PMI report for July at 09:00 GMT.
- The US ISM Services PMI is expected to improve a tad in July.
- The US services sector should remain in expansionary territory.
- Bets of further Fed tightening appear to have lost traction in the last few days.
On Wednesday, we’ll get the latest read on the US services sector when the Institute for Supply Management (ISM) publishes its July gauge. Consensus points to a marginal improvement to 54.5 from June’s 54. If confirmed, the reading would reinforce the sector’s resilience and offer a modest boost to confidence in the broader economy.
Back in June, the details from that release were encouraging: hiring momentum strengthened, with the ISM Employment Index rising to four-month highs at 51.2. On the flip side, New orders lost a bit of steam, easing to 55.1, which hinted that demand may be cooling. Despite the steady growth, the Prices Paid Index slipped to 67.7, echoing the diminishing momentum of inflation pressure.
What to expect from the ISM Services PMI report?
Inflation in the US is still running hotter than the Federal Reserve’s (Fed) 2% target, and that keeps policymakers uneasy, especially amid the still unresolved crisis in the Middle East and with the full effects of US tariffs yet to filter through the economy.
The latest Personal Consumption Expenditures (PCE) report underscored this point. Core inflation, which strips out food and energy, rose by 3.3% from a year earlier in June, down from 3.4% in May. The Headline PCE increased by 3.7% over the last 12 months from June’s 4.1% annual gain.
Against that backdrop, an ISM Services PMI that lands in line with expectations probably won’t move the US Dollar (USD) much. It would simply confirm the picture of an economy that’s still resilient but still wrestling with sticky price pressure. A softer-than-expected print though could shake confidence and see investors probably trimming their USD holdings on fears that growth is losing momentum.
When will the ISM Services Purchasing Managers Index report be released, and how could it affect EUR/USD?
The Institute for Supply Management (ISM) will publish the Services Purchasing Managers Index (PMI) on Wednesday at 14:00 GMT.
Pablo Piovano, Senior Analyst at FXStreet, notes that renewed selling pressure could first prompt EUR/USD to retest its provisional 55-day SMA at 1.1491. A break below this level could lead to a deeper pullback toward the July floor at 1.1386 (July 28).
On the other hand, if the pair regains strength, it could initially revisit the August ceiling at 1.1558 (August 3), just ahead of the intermediate 100-day SMA at 1.1567 and the weekly peak at 1.1622 (June 15), closely followed by the always relevant 200-day SMA at 1.1628, Piovano argues.
Overall, he adds, as long as EUR/USD stays below its 200-day SMA, the broader bearish outlook should remain intact.
Economic Indicator
ISM Services PMI
The Institute for Supply Management (ISM) Services Purchasing Managers Index (PMI), released on a monthly basis, is a leading indicator gauging business activity in the US services sector, which makes up most of the economy. The indicator is obtained from a survey of supply executives across the US based on information they have collected within their respective organizations. Survey responses reflect the change, if any, in the current month compared to the previous month. A reading above 50 indicates that the services economy is generally expanding, a bullish sign for the US Dollar (USD). A reading below 50 signals that services sector activity is generally declining, which is seen as bearish for USD.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
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