ISM Services PMI consensus calls for gently dwindling economic expansion
- The US ISM Services PMI is expected to tick higher in May, up from the 53.6 posted in April.
- Investors will pay attention to the Prices Paid and Employment subindexes ahead of the Fed meeting.
- EUR/USD is in a wait-and-see mode ahead of data, war headlines.
The Institute for Supply Management (ISM) is scheduled to release the May Services Purchasing Managers Index (PMI) on Wednesday. Market participants anticipate a modest improvement, with the index forecast at 53.8, up from 53.6 in April.
The index is a trusted measure of the health of the United States (US) services sector, closely followed by market participants. It is based on a survey conducted by ISM among companies across the US and revolves around the 50 threshold: a reading above it indicates expansion, while a reading below it indicates contraction.
What to expect from the ISM Services PMI report?
The April ISM report showed that economic activity in the services sector remained in expansion territory for the 22nd consecutive month, yet eased from the 54.0 posted in March. Reading employment, “activity in the services sector remained in contraction in April for a second month in a row. The Employment Index registered 48, up from the March figure of 45.2,” while below its 12-month average of 48.6.
The Prices Paid Index, which is directly linked to inflation, registered 70.7, unchanged from March, raising its 12-month average from 67.2 to 67.7, the highest average reading since May 2023.
“There were several comments from respondents stating that they have yet to see petroleum price increases impacting petroleum-related products, so we expect to see continued elevated readings for the Prices Index for several months — regardless of when the conflict in Iran ends — due to these costs working their ways through global supply chains,” the official report adds.
The Employment and Prices Paid indexes are relevant, as they provide early clues on data that shape the Federal Reserve’s (Fed) monetary policy path. The central bank features a new Chair, Kevin Warsh, who will preside over his first monetary policy meeting in mid-June. Warsh was selected by US President Donald Trump to serve as Chair, aiming for a more “friendly” Chair who would not oppose his desire for lower interest rates.
President Trump, however, is also responsible for the ongoing war in Iran, which has brought back inflationary pressure, making it difficult for the Fed to cut interest rates. Quite the opposite: speculative interest keeps betting on potential interest rate hikes before the year is over as inflation is nearly double the central bank’s 2% goal.
The Personal Consumption Expenditures (PCE) Price Index, the Fed’s favorite inflation gauge, climbed to 3.8% YoY in April from 3.5% YoY in March, as expected. The core annual PCE Price Index, which excludes volatile food and energy prices, rose 3.3%, also meeting the market’s expectations.
Additionally, the US will release the May Nonfarm Payrolls (NFP) report on Friday, and the employment sub-component from the ISM Service PMI could provide clues on how hiring performed in May.
The headline reading will trigger the initial market reaction. As previously mentioned, a reading above the 50 threshold will be considered positive, although the US Dollar (USD) would surge on a better-than-anticipated outcome, as it would signal economic progress and increase the odds of an upcoming interest rate hike.
A reading above 50 yet below expectations could have a modest negative impact on the Greenback. A surprise reading below the critical threshold, however, will fuel concerns about US economic growth and put the USD under selling pressure.
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 Wednesday. Ahead of the release, the US Dollar (USD) is under modest selling pressure, pretty much stable as market participants await news from the Iran war front. Hopes for an agreement are slowly fading as tensions between Israel and Lebanon have interrupted talks between the US and Iran to reach a Memorandum of Understanding (MOU).
Valeria Bednarik, FXStreet Chief Analyst, notes: “The EUR/USD pair trades at around 1.1640, little changed on a weekly basis, holding on to familiar levels. The technical picture for the pair is bearish, though directional momentum is lacking. In the daily chart, the pair develops below all its moving averages, which, anyway, are pretty much directionless and confined to a 40-pip range. At the same time, technical indicators head nowhere below their midlines, reflecting directional uncertainty.”
Bednarik adds: “The war is still the main market driver, although the ISM report could introduce some near-term action. As previously noted, an upbeat report should boost demand for the Greenback and send EUR/USD toward its recent lows in the 1.1580 region. If war-related headlines, in the meantime, trigger risk-aversion, the pair could extend its slump toward the 1.1530 price zone. The opposite case is also valid, with a discouraging ISM Services PMI outcome pushing EUR/USD higher, toward the 100-day SMA at around 1.1690. Finally, a discouraging report alongside renewed hopes for a war ending can push the pair up to 1.1740 and beyond.”
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact 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 when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
Economic Indicator
ISM Services PMI
The Institute for Supply Management (ISM) Services Purchasing Managers Index (PMI), released on a monthly basis, is a leading indicator gauging business activity in the US services sector, which makes up most of the economy. The indicator is obtained from a survey of supply executives across the US based on information they have collected within their respective organizations. Survey responses reflect the change, if any, in the current month compared to the previous month. A reading above 50 indicates that the services economy is generally expanding, a bullish sign for the US Dollar (USD). A reading below 50 signals that services sector activity is generally declining, which is seen as bearish for USD.
Read more.Next release: Wed Jun 03, 2026 14:00
Frequency: Monthly
Consensus: 53.8
Previous: 53.6
Source: Institute for Supply Management
The Institute for Supply Management’s (ISM) Services Purchasing Managers Index (PMI) reveals the current conditions in the US service sector, which has historically been a large GDP contributor. A print above 50 shows expansion in the service sector’s economic activity. Stronger-than-expected readings usually help the USD gather strength against its rivals. In addition to the headline PMI, the Employment Index and the Prices Paid Index numbers are also watched closely by investors as they provide useful insights regarding the state of the labour market and inflation.
Artigos Recomendados
