The US Services PMI fell to 50 in September, down from 52 in August, missing the estimate of 51.7. This suggests that business activity in the service sector is stagnant. The Employment Index edged up from 46.5 to 47.2, and the Prices Paid Index rose slightly from 69.2 to 69.4. This weaker PMI report put pressure on the US Dollar, which decreased by 0.2% to 97.67 against other currencies, especially losing ground against the British Pound.

ISM Services PMI Expectations

The ISM Services PMI is expected to be 51.7, a decrease from August’s 52, but still indicates growth in the sector. This report, which usually comes out alongside the US Nonfarm Payroll (NFP) report, is more significant now due to a US government shutdown that delays economic data. The report’s results create chances for the Federal Reserve to continue lowering interest rates. The ADP Employment Change survey revealed a loss of 32,000 jobs in the private sector for September. The ISM Services PMI will be released at 14:00 GMT on Friday, impacting the EUR/USD trading pair in the current market. The slowdown in the US services sector is clear, with the September ISM PMI reading of 50 showing a complete halt in activity. This is a sharp decline from recent months and supports the cooling trend seen in Q2 2025 GDP figures, which showed sluggish growth of just 1.4%. Since services have supported the economy, this stagnation is a troubling signal. We are dealing with a tough situation of slow growth and ongoing inflation, creating a complicated atmosphere for the Federal Reserve. The Prices Paid component rose to 69.4, consistent with recent CPI data that showed core inflation stubbornly above 3%. This means the Fed may find it difficult to cut rates, even as the economy weakens.

Labor Market Concerns

The labor market is also a concern, with the employment index in contraction territory at 47.2. Because the government shutdown has delayed the official Nonfarm Payrolls report, this ISM data carries more significance and indicates a softening job market. This aligns with the increase in weekly jobless claims observed over the past quarter. For derivative traders, this data suggests preparing for higher volatility in the coming weeks. The mixed signals on growth and inflation make the Fed’s next steps highly uncertain, likely reflected in options prices on major indices and currency pairs. The VIX, currently around 17, may not fully account for the risk of sharp market reactions to new data or Fed statements. In the interest rate market, this weak growth report will likely fuel expectations for an earlier-than-anticipated Fed rate cut in 2026. This could trigger a rally in front-end government bonds, leading traders to consider futures contracts for this shift. Historically, the bond market starts pricing in cuts long before the central bank takes action, similar to what we observed in late 2023. Given the immediate drop in the US Dollar, currency option traders should explore strategies that benefit from further dollar weakness. The report supports the idea that US economic strength is waning, making currency pairs like EUR/USD and GBP/USD more appealing. Buying call options on these pairs could be a low-risk way to take advantage of a continued decline in the dollar. Create your live VT Markets account and start trading now.

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