- The US ISM Manufacturing PMI surpassed consensus in September.
- The US Dollar remains well on the back foot on Wednesday.
The Institute for Supply Management’s (ISM) data showed the Manufacturing PMI edging higher to 49.1 in September, up from 48.7 in August and slightly above analysts’ expectations of 49.
Meanwhile, the Prices Paid Index, which tracks inflation, retreated to 61.9 from 63.7, the Employment Index improved to 45.3 from 43.8, and the New Orders Index deflated to 48.9 from 51.4.
Market reaction
The Greenback extends its downbeat performance this week, motivating the US Dollar Index (DXY) to deflate to multi-day lows near 97.50.
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 Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.13% | -0.50% | -0.70% | 0.06% | -0.05% | -0.52% | 0.08% | |
| EUR | 0.13% | -0.36% | -0.60% | 0.18% | 0.08% | -0.38% | 0.21% | |
| GBP | 0.50% | 0.36% | -0.20% | 0.54% | 0.45% | -0.02% | 0.57% | |
| JPY | 0.70% | 0.60% | 0.20% | 0.79% | 0.64% | 0.42% | 0.90% | |
| CAD | -0.06% | -0.18% | -0.54% | -0.79% | -0.11% | -0.56% | 0.03% | |
| AUD | 0.05% | -0.08% | -0.45% | -0.64% | 0.11% | -0.46% | 0.12% | |
| NZD | 0.52% | 0.38% | 0.02% | -0.42% | 0.56% | 0.46% | 0.59% | |
| CHF | -0.08% | -0.21% | -0.57% | -0.90% | -0.03% | -0.12% | -0.59% |
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 report for September at 08:00 GMT.
- The US ISM Manufacturing PMI is seen edging a tad higher in September.
- Investors will also follow the ISM Prices index and the Employment index.
- EUR/USD continues to recover shine lost following last week’s lows.
Anticipation is mounting as the Institute for Supply Management (ISM) gears up to unveil the September United States (US) Manufacturing Purchasing Managers Index (PMI) this Wednesday. This crucial report serves as a vital indicator of the health of the US manufacturing sector, while also offering a window into the broader economic outlook.
Key points to keep in mind:
- PMI benchmarks: A reading above 50.0 signals an expanding manufacturing sector, whereas a value below 50.0 indicates contraction.
- Analyst predictions: Experts are forecasting a September PMI of 49.0, marginally above August’s 48.7. Following this slight uptick, the index is still expected to remain within the contraction zone.
- Economic resilience under pressure: While the manufacturing sector remains below the 50.0 threshold, the overall economy’s health has been showing signs of resilience, particularly following the final upward revision of the Q2 GDP Growth Rate. It seems key fundamentals continue to cling to the idea of US “exceptionalism”. This report not only reflects the pulse of the manufacturing sector but also hints at the evolving narrative of the wider economy.
What to expect from the ISM Manufacturing PMI report?
In August, the manufacturing sector gathered some impulse vs. the previous month, although the index has remained in contraction territory since March.
New Orders surge: The New Orders Index rose to multi-month highs of 51.4, signaling that manufacturers are receiving an increasing number of orders.
Declining costs: The Prices Index continued its downward trend in August, retreating for the second month in a row.
Employment gain: The Employment Index rebounded marginally in August, climbing to 43.8, indicative of a slight improvement although still well below the 50 yardstick.
In general, a PMI reading above 50 signals growth in the manufacturing sector, while a reading below that threshold points to contraction. That said, sustained levels above 42.5 percent can still suggest broader economic expansion.
Stronger manufacturing activity tends to support risk assets such as equities as investors gain confidence in growth prospects. At the same time, the US Dollar (USD) may come under pressure as market sentiment improves and capital shifts toward higher-yielding assets. Encouraging signs such as rising new orders and easing price pressure also reinforce the outlook for continued economic expansion.
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 Wednesday.
Prior to the data release, EUR/USD has managed to extend its bounce from last week’s troughs, although extra gains appear to hinge on a stronger catalyst.
Pablo Piovano, Senior Analyst at FXStreet, explained that further consolidation in EUR/USD should not be ruled out in the short-term horizon, with the lower end around 1.1570 offering decent contention for now. The loss of that region could prompt the pair to attempt a move to the August base at 1.1391 (August 1).
Piovano also noted that on the upside, the pair faces initial resistance at the 2025 ceiling of 1.1918 (September 17). A break above this level could spark a likely challenge of the 1.2000 threshold.
Piovano added that the constructive outlook is likely to persist as long as the spot trades above its critical 200-day SMA at 1.1169.
He also pointed out that the Relative Strength Index (RSI) hovers around 51, indicating a pick-up in the bullish stance, while the Average Directional Index (ADX) around 14 suggests that the current trend lacks colour.
GDP FAQs
A country’s Gross Domestic Product (GDP) measures the rate of growth of its economy over a given period of time, usually a quarter. The most reliable figures are those that compare GDP to the previous quarter e.g Q2 of 2023 vs Q1 of 2023, or to the same period in the previous year, e.g Q2 of 2023 vs Q2 of 2022.
Annualized quarterly GDP figures extrapolate the growth rate of the quarter as if it were constant for the rest of the year. These can be misleading, however, if temporary shocks impact growth in one quarter but are unlikely to last all year – such as happened in the first quarter of 2020 at the outbreak of the covid pandemic, when growth plummeted.
A higher GDP result is generally positive for a nation’s currency as it reflects a growing economy, which is more likely to produce goods and services that can be exported, as well as attracting higher foreign investment. By the same token, when GDP falls it is usually negative for the currency.
When an economy grows people tend to spend more, which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation with the side effect of attracting more capital inflows from global investors, thus helping the local currency appreciate.
When an economy grows and GDP is rising, people tend to spend more which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold versus placing the money in a cash deposit account. Therefore, a higher GDP growth rate is usually a bearish factor for Gold price.
Employment FAQs
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.
Read the full article here
