In July, S&P Global’s Composite PMI showed that US business activity picked up, moving from 52.9 to 54.6. This indicates that the private sector is gaining some strength. However, the Manufacturing PMI fell to 49.5, showing a slowdown, while the Services PMI rose to 55.2, reflecting higher demand. Even with mixed results across sectors, the overall outlook for US economic growth is positive, estimated at a 2.3% annual rate. After this data was released, the US Dollar tried to rise, aiming for the 97.30-97.40 range.

Upcoming Data Insights

S&P Global is set to share more details from private sector surveys soon, which will help us understand the economy’s direction better. This report will cover Manufacturing, Services, and Composite PMIs. A PMI above 50 suggests growth. This timely information is useful for forecasting economic conditions before official stats come in. As talks about policy strategies and tariffs continue, analysts are closely watching the upcoming PMI data for signs of economic strength or weakness. How the markets respond will influence currency and policy expectations. More recent data from October shows the US Composite PMI rising to 51.0, a small but clear signal of growth. The services sector is leading this momentum, rising to 50.9, while manufacturing stayed flat at 50.0. This uneven strength in the economy complicates the outlook for monetary policy.

Trade and Policy Implications

The difference between a strong services sector and a stagnant manufacturing sector indicates a two-speed economy. Traders in derivatives should think about pair trades, buying options on service-focused indices while short-selling industrial-focused ones. This approach allows for focusing on the specific trends identified in private sector surveys. The economy’s strength, mainly from the services sector, gives the Federal Reserve little reason to hint at future rate cuts. Therefore, we believe there is value in interest rate derivatives that predict borrowing costs will stay high into next year. This aligns with the “higher for longer” trend that is currently shaping market discussions. Historically, mixed economic signals often lead to increased market volatility. We suggest traders consider buying call options on the CBOE Volatility Index (VIX). This can be a cost-effective way to protect against potential market turbulence. The VIX, which recently hovered around 17, is well below its long-term average, indicating that protection is still relatively affordable. The strength of the US economy, especially when compared to recent PMI data showing declines in the Eurozone and slow growth in China, supports a bullish outlook for the US Dollar. We see opportunities in long positions on Dollar Index futures, which will benefit from the widening gap in economic performance between the United States and other major economies. Create your live VT Markets account and start trading now.

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