The business activity in the US manufacturing sector contracted slightly in August, with the Institute for Supply Management’s (ISM) Manufacturing Purchasing Managers Index (PMI) rising to 48.7 from 48 in July. This print came in below the market expectation of 49.
Other details of the report showed that the Employment Index edged higher to 43.8 from 43.4 in this period, while the Prices Paid Index, the inflation component, retreated to 63.7 from 64.8.
Assessing the survey’s findings, “in August, US manufacturing activity contracted at a slightly slower rate, with new orders growth the biggest factor in the 0.7-percentage point gain of the Manufacturing PMI,” noted Susan Spence, MBA, Chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee, said.
“Looking at the manufacturing economy, 69 percent of the sector’s gross domestic product (GDP) contracted in August, down from 79 percent in July,” Spence added and continued: “Four percent of GDP is strongly contracting (registering a composite PMI® of 45 percent or lower), down from 31 percent in July.”
Market reaction
The US Dollar Index retreated from daily highs after this report and was last seen gaining 0.45% on the day at 98.12.
US Dollar Price Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the British Pound.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.31% | 0.98% | 0.64% | 0.24% | 0.50% | 0.60% | 0.26% | |
| EUR | -0.31% | 0.66% | 0.33% | -0.07% | 0.23% | 0.28% | -0.05% | |
| GBP | -0.98% | -0.66% | -0.32% | -0.73% | -0.44% | -0.38% | -0.71% | |
| JPY | -0.64% | -0.33% | 0.32% | -0.39% | -0.14% | -0.02% | -0.33% | |
| CAD | -0.24% | 0.07% | 0.73% | 0.39% | 0.23% | 0.38% | 0.02% | |
| AUD | -0.50% | -0.23% | 0.44% | 0.14% | -0.23% | 0.07% | -0.26% | |
| NZD | -0.60% | -0.28% | 0.38% | 0.02% | -0.38% | -0.07% | -0.34% | |
| CHF | -0.26% | 0.05% | 0.71% | 0.33% | -0.02% | 0.26% | 0.34% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
This section below was published as a preview of the US ISM Manufacturing PMI data at 06:00 GMT.
- The US ISM Manufacturing PMI is expected to improve to 49 in August, still indicating contraction in the sector.
- Investors will pay attention to the ISM Prices index and the Employment index.
- EUR/USD keeps grinding north, with caution ahead of first-tier releases.
The Institute for Supply Management (ISM) is scheduled to release the August Manufacturing Purchasing Index this Tuesday. The index is a trusted measure of the health of the United States (US) manufacturing sector, closely followed by market players.
The index, based on a survey of companies around the US, revolves around the 50 threshold. A reading above the level indicates an expanding manufacturing sector, while a reading below it indicates contraction.
The ISM Manufacturing PMI is forecast at 49 in August, slightly better than the 48 posted in July.
What to expect from the ISM manufacturing PMI report?
The July ISM report showed that economic activity in the manufacturing sector contracted for the fifth consecutive month, following a two-month expansion preceded by 26 straight months of contraction.
The same report showed that New Orders contracted for the sixth consecutive month, printing at 47.1. The Price Index, which provides clues on inflationary pressures, registered 64.8, down from the 69.7 posted in June, yet still indicating manufacturers pay higher prices. Additionally, the Employment Index registered 43.4, down from June’s figure of 45, while the Production Index printed at 51.4, higher than the 50.3 posted in June.
Overall, manufacturing activity suffered a significant setback in the aftermath of the Coronavirus pandemic and has remained the lagging sector. Services output, on the contrary, has remained resilient. The August ISM Services PMI will be released on Thursday.
Market participants will pay close attention to the employment-related sub-index ahead of the Nonfarm Payrolls (NFP) report, scheduled for release on Friday. The labor market is likely to be at the top of investors’ priorities this week, given its influence on the Federal Reserve’s (Fed) monetary policy decisions.
The headline figure will also be relevant and trigger the initial market reaction. A better-than-anticipated outcome, with a reading above the 50 threshold, should boost demand for the USD, as it would both signal economic progress and diminish the odds of upcoming interest rate cuts. The opposite scenario is also valid, with a discouraging result putting pressure on the Greenback and boosting bets for a September rate cut. Still, the report is unlikely to trigger fireworks across the FX board.
When will the ISM Manufacturing PMI report be released and how could it affect EUR/USD?
The ISM Manufacturing PMI report is scheduled for release at 14:00 GMT on Tuesday. Ahead of the data release, the EUR/USD pair trades comfortably above the 1.1700 mark, with a modest bullish bias. Caution keeps major pairs trading within limited intraday ranges, albeit broad USD weakness helps EUR/USD grind north.
Valeria Bednarik, FXStreet Chief Analyst, notes: “The EUR/USD pair seems poised to retest its 2025 high at 1.1830 in the upcoming days. Despite the limited momentum, technical readings clearly indicate that bulls hold the grip. The August peak at 1.1742 comes as immediate resistance, en route to the mentioned yearly high. Support, on the contrary, is located at the EUR/USD comfort zone around 1.1650, followed by the 1.1590 price zone.”
Bednarik warns: “With the week starting with a US holiday and ending with the NFP release, EUR/USD could see some choppy price action and lack directional definitions. Yet, as the Fed’s September announcement looms, nervous betting on whether the central bank may or may not act this time could result in some wild intraday spikes heading nowhere.”
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 found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022.
Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
Read the full article here
