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US S&P Global Composite PMI declined to 50.9 in April’s flash estimate from 52.1, showing that the business activity in the US’ private sector continued to expand, albeit at a softer pace than in March.
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This section below was published at 08:00 GMT as a preview of the US S&P Global PMI data.
S&P Global PMIs are expected to indicate business activity in the US continued to expand in April.
Manufacturing and Services output are seen advancing at a moderate pace.
EUR/USD holds above 1.0600, near-term bearish bias remains intact.
S&P Global will release the flash estimates of the United States (US) Purchasing Managers Indexes (PMIs) for April on Tuesday, a survey that measures business activity throughout the month. The report is divided into services and manufacturing output and compiled in a final figure, the Composite PMI.
The economic activity in the US private sector expanded at a moderating pace in March, with the S&P Global Composite PMI edging lower to 52.1 from 52.5 in February. The Services PMI declined to 51.7 from 52.3 in this period, while the Manufacturing PMI fell to 51.9 from 52.2.
Commenting on the survey’s findings, “further expansions of both manufacturing and service sector output in March helped close off the US economy’s strongest quarter since the second quarter of last year,” said Chris Williamson, Chief Business Economist at S&P Global Market Intelligence.
“The survey data point to another quarter of robust GDP growth accompanied by sustained hiring as companies continue to report new order growth,” Williamson added. “A steepening rise in costs, combined with strengthened pricing power amid the recent upturn in demand, meant inflationary pressures gathered pace again in March.”
What to expect from the next S&P Global PMI report?
S&P Global Manufacturing PMI and Services PMI are both expected to come in at 52 in April’s flash estimate, highlighting an ongoing expansion in the private sector’s economic activity. Any reading above 50 signals economic activity is growing, while an indicator below this threshold suggests contraction.
Since the beginning of the year, the two main highlights of the US economy have been robust activity and stubborn inflation. Hence, market participants have shifted their expectations toward an extended delay in the Federal Reserve’s (Fed) policy pivot towards rate cuts. Earlier in the year, investors were forecasting the Fed to lower the policy rate as early as March. Employment, activity and inflation data in the first quarter of 2024 largely surprised to the upside and caused investors to reassess the US central bank’s policy outlook. According to the CME FedWatch Tool, markets currently price in a 65% probability that the Fed will lower the policy rate in September.
Flash PMI data for April are expected to confirm that the US economy preserved its strength to start the second quarter. Comments regarding the input costs could also point to ongoing inflationary pressures.
When will April flash US S&P Global PMIs be released and how could they affect EUR/USD?
The S&P Global PMI report will be released on Tuesday at 13:45 GMT. Ahead of the event, the US Dollar (USD) stays resilient against its rivals. The USD Index (DXY), which tracks the USD’s performance against a basket of six major currencies, seems to have entered into a consolidation phase after setting a five-month high above 106.00 in the previous week, boosted by hawkish Fed commentary and risk aversion.
Unless either the Manufacturing or the Services PMI unexpectedly drops below 50 and shows a contraction in the sector’s activity, the USD could hold its ground. If the publication highlights a downturn in private sector’s employment, or a softening in input costs, the USD could come under selling pressure even if headline PMIs hold above 50.
Eren Sengezer, European Session Lead Analyst at FXStreet, shares a brief outlook for EUR/USD:
“The Relative Strength Index (RSI) indicator on the daily chart stays below 40, suggesting that EUR/USD has more room on the downside before it turns technically oversold.”
“On the upside, 1.0700 (static level) aligns as interim resistance before 1.0750, where the 20-day Simple Moving Average (SMA) is located. A daily close above this level could attract technical buyers and open the door for an extended recovery toward the 200-day SMA at 1.0820. On the other hand, supports are located at 1.0600 (static level), 1.0500 (psychological level, static level) and 1.0450 (October 3 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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