US S&P Global Composite PMI edged lower to 54.1 in August’s flash estimate from 54.3 in July, showing that the business activity in the US’ private sector continued to expand at a healthy pace.
Developing story, please refresh the page for updates.
This section below was published as a preview of the US S&P Global PMI data at 08:00 GMT.
- The S&P Global preliminary PMIs for August are seen little changed from previous readings.
- Economic activity surveys are unlikely to affect the Federal Reserve’s upcoming decisions.
- EUR/USD is building a long-term bullish trend, but a downward correction is on the table.
S&P Global will publish the preliminary estimates of the United States (US) Purchasing Managers Indexes (PMIs) for August on Thursday. The indexes are the result of surveys of the senior executives in the private sector and are meant to indicate the overall health of an economy, providing insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment, and inventories.
S&P Global releases three indexes: 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 it represent economic contraction.
Since March 2023, the services sector has remained within expansionary levels while manufacturing has struggled to expand. For what it’s worth, the final July figures showed the Services PMI at 55, while the manufacturing index hit 49.6.
“The US service sector began the second half of the year as it ended the first, seeing a marked expansion of business activity in July on the back of a rise in new orders. Growth of new business also encouraged firms to take on extra staff, as did positive expectations for the future,” the official report reads.
What can we expect from the next S&P Global PMI report?
Financial markets expect a modest downtick in the August Services PMI, foreseen at 54, while the manufacturing index is expected to hold steady at 49.6. As a result, the Composite PMI is forecast to ease to 53.5 from 54.3 in July.
Investors will closely monitor the figures, as concerns about the US recession are still pending in the back. Following the release of the July Nonfarm Payrolls (NFP) report, speculative interest feared a steeper economic setback and even rushed to price in an out-of-schedule rate cut before the September meeting. Concerns cooled 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 September Federal Reserve (Fed) monetary policy decision.
The Fed softened its hawkish tone in the July monetary policy meeting, and policymakers started paving the way for a September interest rate cut. Chairman Jerome Powell has long ago indicated that a loosening labor market and easing inflationary pressures were the two main conditions for a rate cut, but never mentioned economic progress. However, the risk of a recession could also lead to a rate cut amid the increasing risks that high rates pose to the economy. Policymakers won’t say so but indeed consider it.
At this point, the Fed is widely anticipated to trim interest rates in the September meeting, and it seems unlikely these PMI figures will affect such a decision. However, they could introduce some near-term noise.
When will the August flash US S&P Global PMIs be released, and how could they affect EUR/USD?
The S&P Global Manufacturing, Services and Composite PMIs report will be released at 13:45 GMT. As said, the figures are expected to show small variations from the final July readings, meaning they would 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 persistent weakness results from a combination of risk appetite and the belief that the Fed will trim interest rates in September.
According to Valeria Bednarik, FXStreet’s Chief Analyst, “The EUR/USD pair is technically overbought, yet there are no signs of a change in the dominant trend. Upbeat PMI figures could temporarily support the US Dollar, but once the dust settles, market players will resume revolving around the upcoming Fed’s monetary policy decision. In the case of the EUR/USD pair, a corrective decline is now on the table, with supports at 1.1080 and the 1.1000 threshold. The latter should hold to maintain the bullish trend alive.”
Bednarik adds: “EUR/USD faces a strong static resistance level at 1.1140. Once above it, the case for a sustained rally will be firmer, with the 1.1200 mark coming up next.”
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.