- The ISM manufacturing PMI was deflated to 48.5 in May, below the consensus.
- The US dollar is still well defensive, flirting with minimums of several weeks.
Economic activity in the US manufacturing sector lost impulse in May, with the ISM manufacturing PMI retreated 48.5 from 48.7 in April, being below the estimates of analysts of 49.5.
The employment index increased slightly to 46.8 from 46.5 in April, indicating that the payrolls in the sector are increasing at a faster rate. Meanwhile, the paid price index, the survey inflation component, decreased slightly to 69.4 from 69.8. In addition, the new request index rose to 47.6 from April 47.2.
From the publication: “In May, the US manufacturing activity slid further towards contraction after expanding only marginally in February. The contraction in most of the indices that measure demand and production has slowed down, while the supplies have begun to weake of the Institute for Supply Management (ISM).
Market reaction
The US dollar (USD) is quoted with a marked bearish bias on Monday, testing the region below 98.00 after the publication of the data and despite the concerns revived in the commercial front.
GDP FAQS
The gross domestic product (GDP) of a country measures the growth rate of its economy for a certain period of time, normally a quarter. The most reliable figures are those that compare GDP with the previous quarter (for example, the second quarter of 2023 with the first of 2023) or with the same period of the previous year (for example, the second quarter of 2023 with the second of 2022).
The annualized quarterly figures of GDP extrapolate the growth rate of the quarter as if it were constant for the rest of the year. However, they can be misleading if temporary disturbances affect growth in a quarter but it is unlikely that they last all year, as happened in the first quarter of 2020 with the burst of the coronavirus pandemic, when the growth collapsed.
A higher GDP result is usually positive for the currency of a nation, since it reflects a growing economy, which is more likely to produce goods and services that can be exported, as well as attracting greater foreign investment. Similarly, when GDP falls it is usually negative for the currency.
When an economy grows, people tend to spend more, which causes inflation. The Central Bank of the country then has to raise interest rates to combat inflation, with the side effect of attracting more world investor capital tickets, which helps the appreciation of the local currency.
When an economy grows and GDP increases, people tend to spend more, which causes inflation. Then, the country’s central bank has to raise interest rates to combat inflation. Higher interest rates are negative for gold because they increase the opportunity cost to keep gold in the face of placing the money in a cash deposit account. Therefore, a higher GDP growth rate is usually a bearish factor for the price of gold.
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.
