The US S&P Global Composite PMI rose to 52.1 in May, up from 50.6 in April. This indicates more business activity in the US private sector. The Manufacturing PMI also increased to 52.3 from 50.2, and the Services PMI went up to 52.3 from 50.8. This growth has influenced the US Dollar, causing the US Dollar Index to rise by 0.15%, reaching 99.85. The dollar performed particularly well against the New Zealand Dollar.

PMI Predictions

Market analysts expect only slight changes in PMI readings for May. They predict the Services PMI will hold steady at 50.8, while the Manufacturing PMI may decrease to 50.1. Any PMI reading above 52 could strengthen the US Dollar, while readings below 50 might push it down. The US Dollar is the most traded currency globally, involved in over 88% of foreign exchange transactions. The Federal Reserve’s monetary policy significantly affects its value, mainly through interest rate adjustments, which help control inflation and support full employment. With the composite Purchasing Managers’ Index (PMI) moving above the neutral 50 mark to 52.1 in May (up from 50.6 in April), we can see that the US private sector is gaining economic momentum. Both manufacturing and services posted increases to 52.3, indicating a broad improvement. This suggests rising orders, stronger business confidence, and a return of delayed investments. This trend is reflected in the dollar’s response. A 0.15% increase in the Dollar Index may not seem large, but it’s significant. The dollar’s strength, especially against the New Zealand currency, suggests a renewed interest in the greenback, possibly signaling different monetary policies among economic regions. When business activity exceeds expectations, it often leads to speculation about tighter central bank policies or delayed rate cuts.

Market Expectations

Some analysts anticipate a minor decline in the upcoming Manufacturing PMI to 50.1, which still indicates expansion, albeit slight. They expect the Services figure to remain unchanged at 50.8. While neither figure indicates contraction, they do imply stagnation. If either of these numbers significantly exceeds expectations, it could trigger new shifts in interest rate predictions, especially if employment and inflation data align accordingly. We’re closely monitoring how these monthly PMI fluctuations affect rate futures and how differentials vary among developed currencies. Traders will soon consider whether this early summer strength is a one-time event or a sign of lasting recovery. Sentiment can change quickly, especially as key yield levels are approached or breached. If PMIs drop sharply below 50, sectors sensitive to interest rates may respond immediately, as this usually means lower expected demand and changes in inflation outlook. Historically, the dollar struggles when US economic growth falters, especially if other economies are robust. Since the Federal Reserve primarily uses interest rate adjustments to meet its dual mandate, every change in economic signals becomes crucial. It’s not just about current strength but also the sustainability of that strength. Interpreting secondary data has become just as important as tracking major official statistics, especially as central banks proceed with caution. While headline PMIs are early indicators of growth, their alignment with other data—like hiring, industrial orders, and regional surveys—provides more reliable confirmation. Clusters of data indicating broader acceleration could support the case for maintaining or even raising rates, which would bolster the dollar. At this point, it’s not only about economic expansion but also about whether this growth is strong enough to influence rates compared to current expectations. This is a critical point for traders to consider. Create your live VT Markets account and start trading now.

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