The Institute for Supply Management (ISM) is scheduled to release the March Manufacturing Purchasing Managers’ Index (PMI) on Wednesday. Market participants anticipate it would ease modestly to 52.3 from the 52.4 posted in February.
The index is a trusted measure of the health of the United States (US) manufacturing sector, closely followed by market players. It is based on a survey conducted by ISM among companies around the US. The index revolves around the 50 threshold: a reading above it indicates an expanding sector, while a reading below it indicates contraction.
What to expect from the ISM manufacturing PMI report?
The February ISM report showed that economic activity in the manufacturing sector remained in expansion territory, but eased from the January print of 52.6. Still, “economic activity in the manufacturing sector expanded in February for the second straight month but only the third time in 40 months,” according to the official report, indicating the sector is still struggling to overcome the COVID-19 pandemic setback.
The ISM Manufacturing PMI report also shows that the New Orders Index expanded for the second straight month in February after four straight readings in contraction, registering 55.8, down from January’s figure of 57.1. The Prices Index increased to 70.5 from January’s reading of 59, and its highest reading since June 2022, while the Employment Index ticked higher to 48.8 from 48.1 in the previous month.
“Of the six largest manufacturing industries, four (Chemical Products; Machinery; Transportation Equipment; and Computer & Electronic Products) expanded in February”, Susan Spence, Chair of the ISM Manufacturing Business Survey Committee, said.
Market participants will not only look at the headline for sectoral expansion or contraction, but also at the inflation and employment sub-indexes. As noted above, the Prices Index hit its highest in almost four years in February, before United States (US) President Donald Trump decided to join forces with Israel to attack Iran, resulting in a massive increase in Oil prices, which in turn triggered global inflation concerns.
Also, the employment-related component gains relevance ahead of the Nonfarm Payrolls (NFP) report, scheduled for release on Friday. Employment has become less of a concern in shaping the Federal Reserve’s (Fed) monetary policy decisions, but it would still affect investors’ perception of the central bank’s next move.
Finally, the headline reading will be responsible for the initial market reaction. Generally speaking, a better-than-anticipated outcome, with a reading above the 50 threshold, should boost demand for the US Dollar (USD), as it would both signal economic progress and increased odds of an upcoming interest rate hike. The opposite scenario is also valid, with a discouraging result putting pressure on the Greenback and boosting bets on an on-hold Fed.
When will the ISM Manufacturing PMI report be released and how could it affect EUR/USD?
The ISM Manufacturing PMI report is scheduled for release at 14:00 GMT on Wednesday. Ahead of the release, the US Dollar (USD) retains its safe-haven-inspired strength across the FX board, putting a pause on its rally. The EUR/USD pair trades around the 1.1500 mark, retaining its bearish bias according to technical readings in the daily chart.
Valeria Bednarik, FXStreet Chief Analyst, notes: “The EUR/USD pair is at risk of retesting its 2026 low of 1.1411 in the upcoming sessions, given persistent war-related concerns and anticipated encouraging macroeconomic data. From a technical standpoint, sellers are in control. The daily chart for EUR/USD shows technical indicators aiming south within negative levels, while the pair develops below a now flat 20-day Simple Moving Average (SMA) currently around 1.1670. The weekly peak on Monday was set a handful of pips below the latter, reinforcing the idea of selling interest aligned sound it.”
Bednarik adds: “An upbeat ISM report could push EUR/USD towards the monthly low, with a break below it exposing the 1.1360 region. A discouraging reading could help EUR/USD advance temporarily, with resistance at 1.1560, the 1.1600 area and finally at 1.1670. Given dominant USD demand, however, and advance towards the latter seems unlikely, and any temporal gain will likely attract fresh bearish interest.”
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.
Economic Indicator
ISM Manufacturing Employment Index
The Institute for Supply Management (ISM) Manufacturing Index shows business conditions in the US manufacturing sector, taking into account expectations for future production, new orders, inventories, employment and deliveries. It is a significant indicator of the overall economic condition in US. The ISM Manufacturing Employment Index represents business sentiment regarding labor market conditions and is considered a strong Non-Farm Payrolls leading indicator. A high reading is seen as positive for the USD, while a low reading is seen as negative.
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