- ISM Manufacturing PMI deflated to 48.5 in May, missing consensus.
- The US Dollar remains well on the defensive, flirting with multi-week lows.
Economic activity in the US manufacturing sector lost momentum in May, with the ISM Manufacturing PMI receding to 48.5 from 48.7 in April, coming in below analysts’ estimates of 49.5.
The Employment Index increased a tad to 46.8 from 46.5 in April, indicating that the sector’s payrolls are increasing at a faster pace. In the meanwhile, the Prices Paid Index, the survey’s inflation component, eased slightly to 69.4 from 69.8. In addition, the New Orders index went up to 47.6 from April’s 47.2.
Market reaction
The US Dollar (USD) trades on a marked bearish bias on Monday, retesting the sub-98.00 region in the wake of the data release and despite reignited concerns on the trade front.
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.
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