The US economy continued to show signs of growth in August as the S&P Global Composite PMI edged lower to 54.1 from 54.3 in July, surpassing market expectations of 53.5. The private sector demonstrated healthy business activity with the Services PMI rising to 55.2 from 55, while the Manufacturing PMI slumped to 48, indicating ongoing contraction. According to Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, this solid growth points towards robust GDP growth in excess of 2% annualized in the third quarter, alleviating near-term recession fears.
The fall in selling price inflation near pre-pandemic levels signals a ‘normalization’ of inflation, making the case for lower interest rates, as Williamson added. This data prompted a 0.3% increase in the US Dollar Index. The US Dollar also showed strength against the Japanese Yen, as depicted in the percentage change table of major currencies. With the Dollar gaining traction, investors are keeping a close eye on the US PMI data and its influence on global markets.
The upcoming US S&P Global PMI report for August is expected to provide insights into the overall health of the economy based on surveys of private sector executives. The Composite PMI, a weighted average of Manufacturing and Services PMI, is crucial in gauging economic expansion or contraction. While the services sector has maintained expansion, manufacturing has faced challenges. The July figures showed Services PMI at 55 and Manufacturing PMI at 49.6, indicating growth and contraction respectively.
Investors anticipate a slight decline in the August Services PMI to 54 and a steady manufacturing index while the Composite PMI is forecasted to ease to 53.5 from 54.3 in July. Concerns around a US recession remain, and any surprise in growth-related figures could affect sentiment. With the Federal Reserve likely to trim interest rates in the September meeting, the PMI data could introduce near-term market noise. Chairman Jerome Powell has hinted at a rate cut based on labor market conditions and inflationary pressures.
The S&P Global PMIs are scheduled to be released at 13:45 GMT, but the impact on the US Dollar might be limited given the modest expectations from the August figures. The EUR/USD pair trading near its highest level since December 2023 reflects market sentiments towards a Fed rate cut. Technical analysis suggests a corrective decline in the pair with support levels at 1.1080 and 1.1000. Any positive PMI figures could temporarily support the US Dollar, but the focus remains on the Fed’s monetary policy decision in September.
The US Dollar remains the most traded currency globally, influenced significantly by the Federal Reserve’s monetary policy decisions. Adjustments in interest rates impact the USD value, aiming to achieve price stability and full employment. Quantitative easing (QE) and quantitative tightening (QT) are additional tools used by the Fed in extreme economic situations, affecting the strength of the US Dollar. Despite its fluctuations, the US Dollar continues to serve as a leading global reserve currency.
