- Improvements in US ISM Services PMI observed for July.
- The U.S. services sector is anticipated to remain in the growth zone.
- Investors are leaning towards the possibility of two interest rate cuts from the Fed this year.
The Institute for Supply Management (ISM) released its July services PMI on Tuesday, with predictions suggesting a rise to 51.5 from June’s 50.8. This would mark the second month of growth in the services sector, signaling resilience and boosting confidence in the broader U.S. economy.
However, not all indicators from the previous month were equally strong. The ISM employment index fell back into contraction territory at 47.2, while the new order index increased to 51.3, reflecting a rebound in demand for services. Concerning costs, prices paid dropped slightly from 68.7 to 67.5, reminding us that price pressures are still very present.
Expectations for the ISM Services PMI report
U.S. inflation continues to be higher than the Fed’s targeted 2.0%, which keeps policymakers on alert, particularly since recent tariffs haven’t yet shown their full effects on the economy.
The PCE report from last week underlined these concerns. Headline inflation increased from last June, reaching over 2.4%, up from predictions of more than 2.4% in May.
In light of this, it seems the ISM services may not just reflect PMIs that meet expectations and impact the U.S. dollar. There could be a sense of increased economic strength despite ongoing price pressures. But if the services sector shows sharper volatility than anticipated, it may stir market fluctuations, pushing investors to seek a stronger dollar amid worries about economic momentum waning.
Release of the ISM Service Purchasing Manager Index report and its potential impact on EUR/USD
The ISM will publish the Services Purchasing Managers Index (PMI) on Tuesday at 14:00 GMT.
Pablo Piovano, a senior analyst at FXSTREET, noted, “The revival of sales first allowed EUR/USD to hit a monthly low at 1.1391 (August 1).” He added that this strength might encourage the market to challenge the weekly highs around 1.1788 (July 24). Clearing this region could even open up the possibility for the pair to reach the 1.2000 mark.
Piovano also suggested, “The positive outlook for the pair should remain intact as long as it stays above the 200-day SMA at 1.0944.”
(This piece was updated to 8:10 GMT on August 5th, clarifying that ISM Services PMI data will be available on Tuesday, not Thursday.)
Economic indicators
ISM Service Employment Index
Released by the ISM Non-Manufactured PMI, this index provides insights on business conditions in the U.S. non-manufacturing sector, factoring in projections for production, new orders, inventory, employment, and delivery expectations. It serves as a crucial indicator of the overall economic climate in the U.S. The ISM Services Employment Index reflects business sentiment regarding the labor market and is viewed as a significant non-farm payroll indicator. Scores above 50 are interpreted as favorable (or bullish) for the USD.
