S&P Global PMIs expected to confirm US economic expansion in February
- The S&P Global preliminary PMIs for February are likely to show little variation from the January final readings.
- The Federal Reserve may resume its easing cycle in July.
- EUR/USD’s near-term outlook remains negative ahead of PMIs.
S&P Global is set to release its early estimates for the United States (US) Purchasing Managers Indexes (PMIs) for February this Friday. These PMIs are based on surveys of top private-sector executives and offer a snapshot of the overall economic health by looking at key factors like GDP, inflation, exports, capacity use, employment, and inventories.
There are three indexes to watch: the Manufacturing PMI, the Services PMI, and the Composite PMI—a weighted average of the two. A reading above 50 signals that economic activity is expanding, while a figure below 50 indicates contraction. Because these figures are published monthly, well before many other official stats, they provide an early look at how the economy is performing.
In January, the Composite PMI came in at 52.7, the lowest level since April 2024, although still indicating a solid performance in business activity. According to S&P Global, “A renewed increase in manufacturing production coincided with a slower rise in services activity. The rate of expansion in new business also eased in January, but the pace of job creation quickened and was the strongest since June 2022. Meanwhile, both input costs and output prices rose at faster rates”.
What can we expect from the next S&P Global PMI report?
Investors expect the flash Manufacturing PMI to nudge up slightly from 51.2 to 51.5 in February, while the Services PMI is anticipated to rise a bit from 52.9 to 53.0.
Even though the manufacturing sector's performance may not be a surprise, this small improvement could ease worries—especially if the Services sector continues to show strong growth.
Everyone will be closely watching the surveys’ findings on inflation and employment. After Fed Chair Jerome Powell’s cautious comments about easing policies further in his semiannual testimonies, market expectations now place another rate cut in July.
Powell pointed out that there’s no rush to cut rates, thanks to steady economic growth, a solid job market, and inflation that still runs above the 2% target. “We do not need to be in a hurry to adjust policy”, he reiterated.
If the Services PMI unexpectedly falls below 50, it could spark a quick selloff of the US Dollar (USD). On the other hand, if the Services PMI stays on track and the Manufacturing PMI rises above 50 into expansion territory, the USD might strengthen against its rivals.
Looking ahead, if the PMI surveys reveal rising input costs in the service sector alongside a strong labor market, the idea of a tighter-for-longer Fed might be reinforced. Conversely, softer price pressures and weak private sector job growth could renew hopes for further easing, which might put pressure on the USD.
When will the January flash US S&P Global PMIs be released and how could they affect EUR/USD?
The S&P Global Manufacturing, Services and Composite PMIs report will be released on Friday at 14:45 GMT and is expected to show US business activity remaining in the expansion territory.
Ahead of the release, Pablo Piovano, Senior Analyst at FXStreet, notes: “If bulls manage to regain the initiative, EUR/USD could challenge the February peak of 1.0513 recorded on February 14, which is closely followed by the 2025 high of 1.0532 reached on January 27. Should spot break through this barrier, traders might see a spirited climb toward the December 2024 top of 1.0629 (set on December 6) once the Fibonacci retracement of the September-January decline at 1.0572 is cleared.”
“The resurgence of a sustained downward trend, instead, should put the pair en route to revisit the February low of 1.0209 hit on February 3, prior to its 2025 bottom of 1.0176 established on January 13. The breakdown of this level could signal a bearish turn back to the crucial parity zone,” Piovano adds.
“The ongoing negative outlook is expected to persist as long as spot trades below its critical 200-day SMA at 1.0743. Further indicators note that the Relative Strength Index (RSI) remains around the 55 zone, indicating some constructive momentum, although the Average Directional Index (ADX) below 15 denotes a weakening trend,” Piovano concludes.
Economic Indicator
S&P Global Composite PMI
The S&P Global Composite Purchasing Managers Index (PMI), released on a monthly basis, is a leading indicator gauging US private-business activity in the manufacturing and services sector. The data is derived from surveys to senior executives. Each response is weighted according to the size of the company and its contribution to total manufacturing or services output accounted for by the sub-sector to which that company belongs. Survey responses reflect the change, if any, in the current month compared to the previous month and can anticipate changing trends in official data series such as Gross Domestic Product (GDP), industrial production, employment and inflation. The index varies between 0 and 100, with levels of 50.0 signaling no change over the previous month. A reading above 50 indicates that the private economy is generally expanding, a bullish sign for the US Dollar (USD). Meanwhile, a reading below 50 signals that activity is generally declining, which is seen as bearish for USD.
Read more.Next release: Fri Feb 21, 2025 14:45 (Prel)
Frequency: Monthly
Consensus: -
Previous: 52.7
Source: S&P Global
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.
추천 기사
