Jun 04, 2024

Weaker-than-expected ISM manufacturing data led to a EUR vs USD exchange rate surge.

EURUSD – Daily Chart

EURUSD – Daily Chart 

The EURUSD exchange rate surged from 1.0840 to 1.0877, and tough resistance is at the 1.0850 level.

Business activity in the US manufacturing sector slowed at an accelerating pace in May, with the ISM Manufacturing PMI dropping to 48.7 from 49.2 in April. That came in below the market’s expectation of 49.6.

The Employment Index of the PMI survey improved to 51.1 in May from 48.6 in April, while the New Orders Index also slowed to 45.4 from 49.1. Weakness in the manufacturing sector will add further pressure on the Federal Reserve to cut interest rates.

“US manufacturing activity continued in contraction after growing in March, the first expansion for the sector since September 2022. Demand was soft again, output was stable, and inputs stayed accommodative,” said Timothy Fiore, Chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee.

The number also followed a slower-than-expected PCE report from the Commerce Department showing a rise of 0.2% from March to April, down from 0.3% in the previous month. It was the slowest increase this year and will allow the Fed some room to ease rates if they want to help the economy. The significant reading this week will be Friday’s Non-Farm Payrolls jobs data.

Tomorrow at 3:55 pm, HKT will also bring employment figures from the German economy, including the unemployment change and unemployment rate. The reading is expected to be close to last month’s 10k additional unemployed.

That will lead to Wednesday’s US Services PMI reading, expected to grow from 49.4 to 50.5. Thursday will then bring the European Central Bank’s interest rate meeting, where a first-rate cut is expected. The following press conference could explain the future pace of cuts and determine how the EURUSD behaves around the 1.0850 resistance level.

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