The latest round of manufacturing and services PMI readings from the US economy reflected a faster pace of expansion for both sectors.
- May Flash Manufacturing PMI: 50.9 (50.0 forecast, 50.0 previous)
- May Flash Services PMI: 54.8 (expect 51.2, previous reading upgraded from 50.9 to 51.3)
The S&P Global Manufacturing PMI for May rose from 50.0 to 50.9 against the flat consensus, indicating a stronger pace of growth. The report components revealed that both production and employment rose during the month.
According to Chris Williamson, chief business economist at S&P Global Market Intelligence:
“At the same time, selling price inflation has risen and continues to indicate inflation slightly above target. What is interesting is that the main inflationary momentum is now coming from manufacturing rather than services…suggesting that the final tilt is toward the Fed's 2% target.” Still a long way off.
Meanwhile, the Services PMI for May jumped from an updated figure of 51.3 to 54.8, far beating the estimate of 51.2 and marking its fastest growth in a year. In addition, service industry activity also recorded its 16th consecutive monthly expansion.
Link to the S&P Global US Flash Composite PMI
Fundamental data also showed that service sector costs rose at a faster rate, mainly driven by higher staffing costs.
Market reactions
US dollar against major currencies: 5 minutes
Overlay of the US dollar against major currencies Chart by TradingView
The US dollar saw broad-based weakness in the run-up to the release of the flash US PMI, as traders were likely unwinding their previous bullish bets.
Dollar bulls, though, rallied after seeing much stronger-than-expected results, as bullish surprises from both industries likely reinforced the Fed's hawkish outlook.
From there, the greenback was able to maintain its gains against its forex rivals before moving mostly sideways over the next few hours.
The US dollar made its biggest gains against the Canadian dollar, which remains affected by lower crude oil prices and the Bank of Canada lowering its June forecast, and the British pound, which appears to be suffering from the downbeat UK services PMI released earlier.
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