GBP USD Pound Surges as Traders Pare Rate Cut Bets After PMI Beat 5 months ago

In the advanced economies, inflation is still heading down; US growth outshines Europe; central banks hold interest rates again. November saw inflation continue to decline in developed economies after a period of high inflation. In the US, the Consumer Price Index (CPI) ticked down to 3.1% (annualized) in November (3.2% in October), while core inflation remained unchanged at 4.0% (annualized). Eurozone headline inflation eased to 2.4% year over year in November (down from 2.9% in October)—the lowest rate in more than two years. Core inflation remained elevated at 3.6% in November but is coming down (4.2% in October). In the UK, CPI inflation dropped unexpectedly below 4.0% to reach 3.9% in November (4.6% in October); core inflation remains high but was down to 5.1% in November (5.7% in October).

This economic indicator offers valuable insights into the health of the US market, influencing both the direction and volatility of currency pairs. Through his monthly work on the HHPI, he also takes a keen interest in tracking the performance of the UK housing market in a high frequency manner.Paul joined the company in 2008 following the acquisition of NTC Economics by Markit where he was an economist since May 2002. He holds a first class BSc honours degree in economics from the University of Hull, plus a MSc in Economic Policy and Management with distinction from the University of Strathclyde.

In today’s lesson, we will analyze the impact of composite PMI on different currency pairs and identify the change in volatility due to the news announcement. We will be looking at the PMI data in the Eurozone that was released in June (May as the reference month). The below image shows the previous, predicted, and latest PMI reading, where we see a big increase in the number compared to the previous month. The composite PMI is closely watched by traders and investors around the world that greatly influences their investment decision. They mainly if the number is below or above the 50 levels, which shows potential contraction or expansion in the economy.

  1. The rate remains in the range between 5.25% and 5.50%; however, the committee signaled the potential for at least three rate cuts through 2024 toward a range of 4.6% to 5.4%.
  2. When it comes to predicting the GDP growth, a reading above 42 is considered a benchmark for economic expansion.
  3. If the number remains below the 50 mark, it means the economy has entered into a recession.
  4. A parts supplier for a manufacturer follows the PMI to estimate the amount of future demand for its products.

We can say that the PMI data did not have a major impact on the currency where the market remains sideways a few minutes after the news release as well. Let us start with the EUR/USD currency pair to observe the change in volatility due to the news release. The above image shows the price’s behavior before the news announcement, where we see that the market is a strong uptrend.

The eurozone economy is expected to bounce back due to rising real incomes as people benefit from falling inflation, growing nominal wages, and improving foreign demand. December’s growth projections from the European Central Bank stand at 0.6% for 2023 and 0.8% for 2024, respectively down –0.1 and –0.2 percentage points compared with the bank’s previous forecasts in June. Backlog of Orders†ISM®’s Backlog of Orders Index registered 44.7 percent, a 0.6-percentage point decrease compared to December’s reading of 45.3 percent, indicating order backlogs contracted for the 16th consecutive month after a 27-month period of expansion. Of the six largest manufacturing industries, only Transportation Equipment expanded order backlogs in January. “The index remains in contraction, as production rates and new order levels continue to have a negative effect on backlogs,” says Fiore. Supplier Deliveries†Delivery performance of suppliers to manufacturing organizations was faster for the 16th straight month in January, as the Supplier Deliveries Index registered 49.1 percent, 2.1 percentage points higher than the 47 percent reported in December.

The US S&P Global Composite PMI Flash not only influences Forex trading but also affects the broader financial market. It offers a comprehensive snapshot of the US economy’s performance, impacting equities, bonds, and commodities markets. A significant deviation of a real value from a forecast one may cause a short-term strengthening or weakening of a national currency in the Forex market. The threshold values ​​of the indicators signaling the approach of the critical state of the national (local) economy occupy a special place. The above charts are that of the EUR/AUD currency pair, where the market shows a strong downtrend signifying a great amount of weakness in the Euro. Recently, the price has shown signs of retracement, and so we can expect a continuation of the down move after noticing trend continuation patterns.

Short-term Trading Strategies

On the other hand, when new orders decline, the manufacturer may have to lower its prices and demand a lower cost for the parts it purchases. Those new orders drive the purchasing decisions of its leadership about dozens of component parts and raw materials, such as steel and plastic. Existing inventory balances also drive the amount of production the manufacturer needs to complete to fill new orders and to keep some inventory on hand at the end of the month. A PMI above 50 represents an expansion when compared with the previous month. A PMI reading under 50 represents a contraction while a reading at 50 indicates no change. After the news announcement, the price does not move adversely in any direction and remains almost at the same place as it was before.

In China, retail sales accelerated to 10.1% year-on-year growth in November (7.6% in October). The currency jumped as much as 0.7%, before paring gains to trade 0.4% higher at $1.2741, still darwinex review on track for the biggest daily increase in more than a month. UK government bonds erased an earlier advance, with the 10-year yield reaching 4% for the first time since mid-December.

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Traders can position themselves to profit from this downward movement with appropriate short-term trades. If the PMI Flash value is significantly higher than expectations, it can lead to a surge in the US dollar value as investors react to the positive economic outlook. Traders can take advantage of this by placing trades that anticipate this upward movement. The Purchasing Managers’ Index results are released on the first Monday of every month. You will earn 150
bonus reputation points for each definition that is accepted. The worldwide PMI data are available for download via subscription from S&P Global and press releases are also available from S&P Global.

Suppliers

The Global PMI is an economic indicator that is derived from questionnaires sent to manufacturing and services companies in more than 40 different countries. The survey gets responses https://traderoom.info/ from roughly 28,000 global companies and represents 89% of global GDP. It provides operational information covering business activity in the entire US private sector.

An Employment Index above 50.3 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment. The PMI™ is widely seen as an accurate and timely indicator of business conditions that helps analysts and economists to correctly anticipate changing economic trends in official data series such as gross domestic products (GDP), industrial production, employment and inflation. Because PMI data are sometimes released months ahead of comparable official data, the PMI surveys are ranked among the world’s most market moving economic data releases. Overall, across surveyed economies, the manufacturing sector has shown contraction for the 15th month in a row, while services momentum decreases. In the US, the industrial production index decreased slightly in October to 102.7 (103.6 in September), while November’s purchasing managers’ index (PMI) for manufacturing fell slightly to 49.4.

Purchasing Managers’ Index (PMI) is a vital economic indicator that traders use to gauge the economic health of the manufacturing and service sectors. The US S&P Global Composite PMI Flash provides an advanced glimpse into this data, allowing traders to anticipate potential market movements before the final PMI figures are released. Investors, economists, and analysts have a wealth of information to help them gauge where the economy is headed. Released every month, it is derived from a survey sent out by the Institute for Supply Management to more than 400 companies in various sectors. Responses are compiled and a reading is reported based on how these companies feel about the current economic climate.

Understanding Economic Indicators

The rate remains in the range between 5.25% and 5.50%; however, the committee signaled the potential for at least three rate cuts through 2024 toward a range of 4.6% to 5.4%. US exports were $258.8 billion in October, $2.6 billion (–1.0%) lower than in September, while October imports were $323 billion, $0.5 billion (0.2%) above the September figure. China’s exports rebounded from contraction in November, growing by 0.5% year over year (–6.4% in October), to break a six-month streak of consecutive declines; imports fell by –0.6% in November (3.0% increase in October). Buying PolicyThe average commitment lead time for Capital Expenditures in January was 172 days, a decrease of two days compared to December. Average lead time in January for Production Materials was 83 days, an increase of one day. Average lead time for Maintenance, Repair and Operating (MRO) Supplies was 43 days, a decrease of three days compared to December.

For Business

The Chicago PMI is an economic indicator derived from business survey data collected each month from firms from all sectors specifically in the Chicago area of the United States. Respondents are predominantly members of the Institute for Supply Management – Chicago. The invasion of Ukraine continues to have deep human, as well as social and economic, impact across countries and sectors.

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