US Volatile Today as ISM Services Jump, US Employment Falls

Today’s ISM services report showed a decent improvement in activity for May, but US employment is getting weaker, which is keeping the USD volatile. Recently we have seen softer numbers from US employment indicators, and today’s miss in the ADP employment confirmed the trend further, after yesterday’s softer JOLTS job openings.

The ISM non-manufacturing index surpassing forecasts at 53.8 points versus the expected 50.8 points indicates a stronger-than-expected performance in the services sector. However, the employment component remains below 50 points at 47.1 points, albeit showing improvement from the previous month’s 45.9 points.

Additionally, the prices paid component, while lower than last month, still indicates elevated inflationary pressures. In currency markets, the EURUSD pair briefly climbed above the high resistance objective of 1.0880s before the release of the ISM report. However, it has since turned lower and is approaching the rising 100 SMA around 1.086o.

Despite the positive ISM services data, markets are increasingly pricing in the likelihood of a Federal Reserve rate decrease in September and November. This sentiment is influenced by weakening employment data in the US, as indicated by today’s ADP statistics. As a result, any brief gains seen in the USD have likely been reversed. This suggests that investors are interpreting the broader economic context, including employment trends, as more influential factors in shaping monetary policy expectations and currency movements.

Institute for Supply Management (ISM) May 2024 Services PMI

• ISM Services PMI: The May Services PMI came in at 53.8 points, significantly higher than the expected 50.8 points
• April ISM Services: The ISM services for April were 49.4 points recorded in April. This indicates expansion in the services sector, with a reading above 50 points signaling growth.

Key Components:

• New Orders: Increased to 54.1 points from 52.2 points in the previous month, indicating stronger demand.
• Employment: Rose to 47.1 points from 45.9 points prior, although still below 50, suggesting contraction in employment but at a slower pace.
• Prices Paid: Decreased to 58.1 points from 59.2 points, indicating that input price pressures are easing slightly but remain elevated.

Other Details:

• Production: Jumped to 61.2 points from 50.9 points, showing a significant increase in business activity.
• Deliveries: Improved to 52.7 points from 48.5 points, suggesting faster delivery times.
• Inventories: Declined slightly to 52.1 points from 53.7 points, indicating a slower build-up of inventories.
• Order Backlogs: Edged down to 50.8 points from 51.1 points, reflecting a marginal decrease in backlogged orders.
• New Export Orders: Surged to 61.8 points from 47.9 points, indicating strong growth in demand from foreign markets.
• Imports: Dropped to 42.8 points from 53.6 points, signaling a contraction in imports.

There was a nice jump in activity for the May ISM Services PMI, compared to the previous month’s reading, which reflects a noteworthy rebound in the services sector, especially in production and business activity. This uptick is indicative of a positive momentum in economic recovery, with increased new orders and improved employment conditions further supporting this trend.

However, while the slight reduction in the prices paid component suggests some moderation in inflationary pressures, it remains elevated overall, warranting continued monitoring. The response of the dollar in the aftermath of the report indicates initial market optimism, likely driven by the positive data.

But, there’s some “pushing and pulling” at the moment, particularly in light of lower labor market statistics reported over the last couple of days, with the ADP employment also coming weaker than expectations today. The opposing US data has introduced some volatility and uncertainty on the USD pairs today, as investors assess the broader economic landscape and its implications for monetary policy and currency movements.

EUR/USD Live Chart

ABOUT THE AUTHOR See More

Skerdian Meta

Lead Analyst

Skerdian Meta Lead Analyst. Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.

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