- The ISM services PMI was below the market expectation in May.
- The USD remains under sale pressure in the American session on Wednesday.
Business activity in the US services sector was contracted slightly in May, with the Purchase Management Index (PMI) of Services of the Supply Management Institute (ISM) falling to 49.9 from 51.6 in April. This reading was below the market expectation of 52.
Other details of the report showed that the paid price index, the inflation component, rose to 68.7 from 65.1, while the employment rate improved to 50.7 from 49.
Evaluating the findings of the survey, “the level of May PMI is not indicative of a severe contraction, but rather of an uncertainty that is widely expressed among the panelists of the ISM service business survey,” said Steve Miller, CPSM, CSCP, president of the ISM Service Business Survey Committee.
“The respondents continued to inform difficulties in forecasting and planning due to long -term tariff uncertainty and frequently cited efforts to delay or minimize orders until the impacts become clearer,” Miller added.
Market reaction
The US dollar (USD) remains under bearish pressure after this report. At the time of publication, the USD index was lowering 0.35% in the day to 98.90.
US dollar FAQS
The US dollar (USD) is the official currency of the United States of America, and the “de facto” currency of a significant number of other countries where it is in circulation along with local tickets. According to data from 2022, it is the most negotiated currency in the world, with more than 88% of all global currency change operations, which is equivalent to an average of 6.6 billion dollars in daily transactions. After World War II, the USD took over the pound sterling as a world reserve currency.
The most important individual factor that influences the value of the US dollar is monetary policy, which is determined by the Federal Reserve (FED). The Fed has two mandates: to achieve price stability (control inflation) and promote full employment. Its main tool to achieve these two objectives is to adjust interest rates. When prices rise too quickly and inflation exceeds the 2% objective set by the Fed, it rises the types, which favors the price of the dollar. When inflation falls below 2% or the unemployment rate is too high, the Fed can lower interest rates, which weighs on the dollar.
In extreme situations, the Federal Reserve can also print more dollars and promulgate quantitative flexibility (QE). The QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is an unconventional policy measure that is used when the credit has been exhausted because banks do not lend each other (for fear of the default of the counterparts). It is the last resort when it is unlikely that a simple decrease in interest rates will achieve the necessary result. It was the weapon chosen by the Fed to combat the contraction of the credit that occurred during the great financial crisis of 2008. It is that the Fed prints more dollars and uses them to buy bonds of the US government, mainly of financial institutions. Which usually leads to a weakening of the US dollar.
The quantitative hardening (QT) is the reverse process for which the Federal Reserve stops buying bonds from financial institutions and does not reinvote the capital of the wallet values ​​that overcome in new purchases. It is usually positive for the US dollar.
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.
