US Services PMI is expected to show a healthy services sector
- The US ISM Services PMI is expected to improve a tad in August.
- The US services sector should remain in the expansionary territory.
- Speculation of two rate cuts from the Fed this year remains on the rise.
On Thursday, we’ll get the latest read on the US services sector when the Institute for Supply Management publishes its August Services PMI. Economists think the index will tick up to 51 from July’s 50.1. If they’re right, that would be the third month in a row the sector has grown, another reminder of its staying power and a small lift for confidence in the broader economy.
Still, the details from July weren’t all upbeat. Hiring momentum slipped, with the ISM Employment Index dropping back into contraction at 46.4. New orders also lost a bit of steam, easing to 50.3, which hints that demand may be cooling. Despite the steady growth, the rising Prices Paid Index to 69.9 highlights the persistent inflation pressures.
What to expect from the ISM Services PMI report?
Inflation in the US is still running hotter than the Fed’s 2% target, and that keeps policymakers uneasy, especially with the full effects of recent tariffs yet to filter through the economy.
The latest Personal Consumption Expenditures (PCE) report underscored this point. Core inflation, which strips out food and energy, rose 2.9% YoY in July, up from 2.8% in June and a touch higher than most forecasts. Headline PCE held steady at 2.6% annually, showing little sign of easing.
Against that backdrop, an ISM Services PMI that lands in line with expectations probably won’t move the US Dollar much. It would simply confirm the picture of an economy that’s still resilient but still wrestling with sticky price pressures. A softer-than-expected print, though, could shake confidence and see investors trim their USD holdings on fears that growth is losing momentum.
When will the ISM Services Purchasing Managers Index report be released, and how could it affect EUR/USD?
The Institute for Supply Management (ISM) will publish the Services Purchasing Managers Index (PMI) on Thursday at 14:00 GMT.
Pablo Piovano, Senior Analyst at FXStreet, notes that renewed selling pressure could first drag EUR/USD down to a weekly floor at 1.1574 (August 27), prior to its monthly low at 1.1391 (August 1). A break below the latter, he says, would put the late-May trough at 1.1210 back on the radar.
On the flip side, if the pair regains strength, it could retest the August ceiling at 1.1742 (August 22), seconded by the late-July high at 1.1788 (July 24), with the 2025 peak of 1.1830 not far behind. Clearing that zone, Piovano argues, could open the door to a run toward the psychologically important 1.2000 mark.
Overall, he adds, as long as EUR/USD stays above its 200-day Simple Moving Average at 1.1045, the broader constructive outlook for the pair remains intact.
Economic Indicator
ISM Services Employment Index
The ISM Non-Manufacturing PMI released by the Institute for Supply Management (ISM) shows business conditions in the US non-manufacturing sector, taking into account expectations for future production, new orders, inventories, employment and deliveries. It is a significant indicator of the overall economic condition in the US. The ISM Services Employment Index represents business sentiment regarding labor market conditions and is considered a strong Non-Farm Payrolls leading indicator. A result above 50 is positive (or bullish) for the USD.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named 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 during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.