The business activity in the US service sector stagnated in September, with the Institute for Supply Management’s (ISM) Services Purchasing Managers Index (PMI) declining to 50 from 52 in August. This reading came in below the market expectation of 51.7.
The Employment Index of the PMI survey edged higher to 47.2 from 46.5 in August, while the Prices Paid Index, the inflation component, rose to 69.4 from 69.2.
“September’s Services PMI level returned to numbers very similar to May and July, with weakness in business activity and continued weakness in employment,” said Steve Miller, Chair of the ISM Services Business Survey Committee. “Employment continues to be in contraction territory, thanks to a combination of delayed hiring efforts and difficulty finding qualified staff,” added.
Market reaction to ISM Services PMI data
The US Dollar (USD) stays under modest bearish pressure following this report. At the time of press, the USD Index was down 0.2% on the day at 97.67.
US Dollar Price Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the British Pound.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.25% | -0.25% | -0.03% | -0.11% | -0.17% | -0.22% | -0.24% | |
| EUR | 0.25% | 0.06% | 0.26% | 0.16% | 0.09% | 0.03% | 0.01% | |
| GBP | 0.25% | -0.06% | 0.26% | 0.08% | 0.04% | -0.03% | -0.04% | |
| JPY | 0.03% | -0.26% | -0.26% | -0.13% | -0.20% | -0.26% | -0.29% | |
| CAD | 0.11% | -0.16% | -0.08% | 0.13% | -0.04% | -0.11% | -0.13% | |
| AUD | 0.17% | -0.09% | -0.04% | 0.20% | 0.04% | -0.06% | -0.08% | |
| NZD | 0.22% | -0.03% | 0.03% | 0.26% | 0.11% | 0.06% | -0.02% | |
| CHF | 0.24% | -0.01% | 0.04% | 0.29% | 0.13% | 0.08% | 0.02% |
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 ISM Services PMI data at 06:00 GMT.
- The US ISM Services PMI is expected to tick down to 51.7 in September, still indicating expansion in the sector.
- Investors will pay attention to the ISM Prices index and the Employment index.
- EUR/USD is unable to attract investors, but is holding above the 1.0700 mark.
The Institute for Supply Management (ISM) is scheduled to release the September Services Purchasing Managers’ Index (PMI) this Friday. The report is a well-trusted measure of business performance in the sector, but it is usually published on the same date as the US Nonfarm Payrolls (NFP) report, which diminishes its relevance.
This time, however, things are different, as the NFP is unlikely to be published due to the ongoing United States (US) government shutdown. The US ran out of funding on Wednesday, not for the first time, nor the last. Among the immediate consequences of a shutdown are the delays and cancellations of data collection and publication, resulting in the country’s inability to provide fresh unemployment figures on Thursday.
As a result, market players are focusing on macro figures offered by independent organizations. The ISM Services PMI is expected at 51.7 in September, slightly lower than the 52 reported in August, although still indicating expansion in the sector.
What to expect from the ISM Services PMI report?
The August ISM Services PMI showed activity grew for the third consecutive month, expanding for the 13th time in the last fourteen months. The report also revealed that the New Orders Index remained in expansion in August, printing at 56, which is significantly better than the 50.3 recorded in July. The Employment Index, however, remained in contraction territory for the third consecutive month, with a reading of 46.5, slightly higher than the previous 46.4. Finally, it is worth noting that the Prices Index registered 69.2 in August, down from July’s reading of 69.9.
Earlier in the week, ISM reported that manufacturing output improved in September, albeit the index remained in contraction territory. The Manufacturing PMI printed at 49.1, following the 48.7 posted in August.
The poor performance of the manufacturing sector is a well-known issue that has persisted since the COVID-19 pandemic. Services businesses, on the other hand, had flourished ever since, balancing the private sector’s overall activity.
Beyond the headline figure, market participants will closely monitor the employment and inflation indexes. The fact that the employment sub-component indicates contraction, as price pressures ease, is a reason for the Federal Reserve (Fed) to keep cutting interest rates. The latest figures reinforced the idea, as the ADP Employment Change survey showed that the private sector lost 32,000 jobs in September and another 3,000 in August.
When will the ISM Services PMI report be released, and how could it affect EUR/USD?
The ISM Services PMI report is scheduled for release at 14:00 GMT on Friday. Ahead of the data release, the EUR/USD pair trades below a weekly peak of 1.1778, struggling to retain the 1.1700 level.”
Valeria Bednarik, FXStreet Chief Analyst, notes: “The EUR/USD pair is in wait-and-see mode, unable to attract investors. The positive momentum has been eroding ever since the pair peaked at 1.1918 in mid-September, while the bearish potential remains well-limited. Given the ongoing uncertainty, the market’s reaction could be limited. An upbeat report won’t be a surprise, providing limited support to the USD. An unexpected discouraging reading, on the contrary, could push EUR/USD initially towards the 1.1770 region, with the next near-term resistance levels at 1.1830 and the aforementioned 1.1918.”
Bednarik warns: “The EUR/USD pair can turn south on a clear break below the 1.1690 mark, the next relevant support is 1.1645, the September 25 low.”
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.
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