The US services sector showed unexpected strength in May, with the ISM Services PMI jumping to 54.5 from April’s 53.6 reading, significantly beating market forecasts of 53.8. The Institute for Supply Management released the data showing accelerated expansion in business activity across America’s dominant services economy, which accounts for roughly two-thirds of US GDP.
The stronger-than-expected print suggests robust economic momentum heading into the second half of 2024, potentially complicating the Federal Reserve’s path toward interest rate cuts. Traders should anticipate immediate pressure on rate-cut expectations, with bond yields likely to rise and the US dollar gaining strength against major currencies. Equity markets may experience mixed reactions as growth optimism battles against higher-for-longer rate concerns.
The services sector’s resilience indicates persistent economic activity despite elevated interest rates, reinforcing concerns about sticky inflation pressures that could keep the Fed in restrictive territory longer than previously anticipated.
FXnCO Insight
Position for reduced September rate cut probability and dollar strength, while monitoring Treasury yields for breakout above recent resistance levels.
Source: FXStreet