Dollar’s rally loses momentum post US ISM Services PMI data

The US Dollar has lost some of its strength in the American session on Monday. The US Dollar Index erased its daily gains and returned to the 104.00 area. ISM Services PMI report for May showed a loss of momentum in the service sector.

The US Dollar has lost its strength in the second half of the day on Monday. The US Dollar Index (DXY), which tracks the USD’s valuation against a basket of six major currencies, reversed its direction and retreated to the 104.00 area after having climbed toward 104.50 earlier in the day.

The monthly data published by the ISM showed that the business activity in the US service sector continued to expand in May, albeit at a softer pace than it did in April. The ISM Services PMI declined to 50.3 in May from 51.9 in April and missed the market expectation of 51.5.

Further details of the ISM PMI report revealed that the Prices Paid Index edged lower to 56.2 from 59.6 and the Employment Index dropped to 49.2 from 50.8.

There has been a pullback in the rate of growth for the services sector. This is due mostly to the decrease in employment and continued improvements in delivery times (resulting in a decrease in the Supplier Deliveries Index) and capacity, which are in many ways a product of sluggish demand.

The US Census Bureau announced that Factory Orders rose 0.4% in April following the 0.9% increase recorded in March.

Wall Street’s main indexes opened mixed on Monday. After the opening bell, the S&P 500 was unchanged on the day, the Nasdaq Composite was up 0.25% and the Dow Jones Industrial Average was down 0.25%. The benchmark 10-year US Treasury bond yield turned south after the PMI data and dropped below 3.7%.

Markets are pricing in a more than 80% probability of the Fed leaving its policy rate unchanged at the upcoming meeting. The monthly data published by the US Bureau of Labour Statistics showed on Friday that Nonfarm Payrolls rose 339,000 in May. This reading surpassed the market expectation of 190,000 by a wide margin. April’s reading of 253,000 also got revised higher to 294,000.

Underlying details of the labour market report revealed that the Unemployment Rate climbed to 3.7% from 3.4% in the same period. The Labour Force Participation rate remained unchanged at 62.6%, while annual wage inflation, as measured by the change in Average Hourly Earnings, edged lower to 4.3% from 4.4%.


The US Dollar Index broke above 104.00 earlier in the day, where the Fibonacci 23.6% retracement of the November-February downtrend is located, but retreated toward that level after the PMI data.