- S&P Global preliminary PMIs for August are expected to remain unchanged from previous readings.
- Economic activity surveys are unlikely to affect the Federal Reserve’s upcoming decisions.
- EUR/USD is building a long-term uptrend, but a downside correction is on the cards.
S&P Global will release preliminary estimates of the US Purchasing Managers’ Indices (PMI) for August on Thursday. The indices are the result of surveys of senior private sector executives and are intended to indicate the overall health of an economy, providing insight into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories.
S&P Global publishes three indices: the manufacturing PMI, the services PMI and finally the composite PMI, which is a weighted average of the two sectors. Readings above 50 indicate expansion, while figures below represent economic contraction.
Since March 2023, the services sector has remained at expansion levels while manufacturing has struggled to expand. For what it’s worth, the final figures for July showed the services PMI at 55, while the manufacturing index reached 49.6.
“The US services sector started the second half of the year much as it ended the first, seeing a marked expansion in business activity in July thanks to a surge in new orders. New business growth also encouraged companies to hire more staff, as did positive expectations for the future,” the official report said.
What can we expect from the next S&P Global PMI report?
Financial markets expect a slight decline in the August services PMI, forecast at 54, while the manufacturing index is expected to remain stable at 49.6. As a result, the composite PMI is forecast to decline to 53.5 from 54.3 in July.
Investors will be keeping a close eye on the figures as concerns about the US recession are still lingering. Following the release of the July Non-Farm Payrolls (NFP) report, speculative interest feared a sharper economic downturn and was even quick to price in an off-schedule rate cut ahead of the September meeting. Concerns cooled down afterwards as macroeconomic data showed the US economy remains resilient. However, any surprise in growth-related figures could lead to a sharp shift in sentiment as the focus is on the Federal Reserve’s (Fed) September monetary policy decision.
The Fed softened its hawkish tone at its July policy meeting, and policymakers have begun paving the way for a rate cut in September. Chairman Jerome Powell has long indicated that a easing labor market and easing inflation pressures were the two main conditions for a rate cut, but he never mentioned economic progress. However, the risk of a recession could also lead to a rate cut amid the growing risks that high rates pose to the economy. Policymakers won’t say, but they certainly consider it.
At this point, it is widely anticipated that the Fed will cut interest rates at the September meeting, and these PMI figures seem unlikely to affect that decision. However, they could introduce some near-term noise.
When will the US S&P Global preliminary PMIs for August be released and how could they impact EUR/USD?
The S&P Global Manufacturing, Services and Composite PMI report is due out at 13:45 GMT. As stated, the figures are expected to show little variation from the final readings for July, which will likely have a limited impact on the US Dollar.
Ahead of the release, the EUR/USD pair is trading at its highest level since December 2023, above the 1.1100 mark. The US dollar’s continued weakness results from a combination of risk appetite and the belief that the Fed will cut interest rates in September.
According to Valeria Bednarik, Chief Analyst at FXStreet, “The EUR/USD pair is technically overbought, but there are no signs of a change in the dominant trend. Upbeat PMI figures might temporarily support the US dollar, but once the dust settles, market participants will once again focus on the Fed’s upcoming monetary policy decision. In the case of the EUR/USD pair, a downward correction is now on the cards, with supports at 1.1080 and the 1.1000 threshold. The latter should hold to keep the uptrend alive.”
Bednarik adds: “EUR/USD faces strong static resistance at 1.1140. Once above this level, the case for a sustained rally will become stronger, with the 1.1200 mark the next target.”
The Fed FAQs
Monetary policy in the United States is directed by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and to promote full employment. Its main tool for achieving these goals is to adjust interest rates. When prices rise too quickly and inflation exceeds the Fed’s 2% target, the Fed raises interest rates, increasing borrowing costs throughout the economy. This translates into a strengthening of the 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 can lower interest rates to encourage borrowing, which weighs on the greenback.
The Federal Reserve (Fed) holds eight meetings a year, at which the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC consists of twelve Federal Reserve officials: the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the 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 called Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit into a jammed 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 of 2008. It involves the Fed printing more dollars and using them to buy high-quality bonds from financial institutions. QE typically 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 capital of maturing bonds in its portfolio to buy new bonds. It is usually positive for the value of the US dollar.
Economic indicator
S&P Global Manufacturing PMI
The manufacturing purchasing managers’ index (PMI), published by Markit Economicscaptures business conditions in the manufacturing sector. As the manufacturing sector dominates a large share of total GDP, the PMI is an important indicator of business conditions and economic conditions in the United States. A reading above 50 implies that the economy is expanding, which investors view as bullish for the dollar, while a reading below 50 points to an economic contraction, and weighs negatively on the currency.
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Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
