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US Dollar Stuck to the Lows as Employment Contraction Offsets ISM Beat

US Dollar Stuck to the Lows as Employment Contraction Offsets ISM Beat

Justin McQueen, Strategist

US Dollar Analysis & News

  • ISM Headline Beats, Employment Index Contracts
  • USD Hovers at the Lows as Labour Market Data Weakens

ISM Headline Beats, Employment Index Contracts

US ISM Manufacturing PMI for August rose to 59.9, beating expectations of 58.6. Meanwhile, the sub-components were generally mixed with the new orders index rising to 66.7 from 64.9, prices paid posted a larger than expected drop to 79.4 vs 83.8 expected and thus reinforcing the view of the Federal Reserve that the spike in inflation will be transitory. However, the main sub-component in terms of market focus, the employment index, fell into contraction territory, posting its lowest reading since November 2020. In turn, given that this follows a poor ADP report, this will likely shape expectations for market participants to position themselves for a softer NFP report as Delta concerns weigh on labour market activity. That said, with two downside surprises regarding the jobs market, the bar has been lowered for the NFP report to surprise on the upside.

ISM Manufacturing Employment Index Drops into Contraction Territory

US Dollar Stuck to the Lows as Employment Contraction Offsets ISM Beat

USD Reaction Muted

The market reaction was on the whole muted, with the USD slightly coming off the lows in response to the better than expected headline. However, with an employment sub-component dropping into contraction territory, the bounce in the greenback has been marginal at best. Going forward, as we head into the NFP release, the general ebb and flow of risk appetite is likely to navigate the FX space, which has been especially evident across the antipodeans.

DailyFX Calendar

US Dollar Stuck to the Lows as Employment Contraction Offsets ISM Beat

Source: DailyFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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