News & Analysis

The release of August’s ISM services PMI was the marquee event for the dollar this week, and for good reason.

US economic exceptionalism has sat firmly in the driving seat of the dollar rally over recent weeks as signs of a soft landing in the US data have been superseded by weak growth indicators out of China and the eurozone. The question heading into today’s release was if this trend of cooling yet positive growth data out of the US would continue with the ISM services PMI, as suggested by the timelier S&P measure, or if the US was going to suffer a similar fate to its economic peers.

However, at 54.5, the overall services measure merely added weight to the US exceptionalism story, with the index providing a positive surprise to expectations of 2 percentage points and 1.8 percentage point increase from July. Across all 18 industries, 13 reported growth in August. More specifically, out of the 5 industries that recorded contraction (agriculture; mining; wholesale trade; health care & social assistance; management of companies & support services), none were oriented towards consumer discretionary spending.

The uptick in the pace of overall services activity wasn’t the only dynamic that forced a renewed bid in the dollar on the basis of a further widening in growth differentials, but the composition of the report also led to a rally in front-end Treasury yields as it suggested that the Fed’s hiking cycle isn’t necessarily over.

The prices paid index rose from 56.8 to 58.9, extending the rebound in the index from last month after a general decline since April 2022, while the pace of employment and new orders also increased on the month, a development that is suggestive of continued strength in services output. All told, today’s ISM services report justifies why the King Dollar remains enthroned despite hard data on the labour market and inflation suggesting a soft landing remains intact.

The dollar took another leg higher as ISM PMIs came in hot




Simon Harvey, Head of FX Analysis


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