The latest S&P Global preliminary Purchasing Managers' Indexes (PMIs) for February are expected to showcase minimal changes from January's numbers, suggesting that US business activity will continue to expand steadily. The Manufacturing PMI is projected to edge up slightly from 51.2 to 51.5, while the Services PMI should see a marginal rise from 52.9 to 53.0. These readings, both comfortably above the critical 50 mark that separates expansion from contraction, signal ongoing growth in the economic landscape.
The Composite PMI, a weighted average of the manufacturing and services indices, is forecasted to remain in expansion territory, reflecting resilience in US business activity. In January, this index stood at 52.7, marking the lowest level since April 2024. However, despite the slowdown, the figures indicate continued expansion.
In January, the Manufacturing PMI experienced a slower rate of increase; however, job creation surged at its fastest pace since June 2022. Meanwhile, input costs and output prices climbed more swiftly, pointing to inflationary pressures within the sector. The rate of expansion in new business eased during the same period, highlighting some caution among businesses.
The S&P Global Manufacturing, Services, and Composite PMIs report is scheduled for release on Friday at 14:45 GMT. These indices offer an early glimpse into economic performance as they are published monthly, well ahead of many other official statistics.
A notable development in February is the renewed increase in manufacturing production coupled with a slower rise in services activity. This balance could influence foreign exchange markets, particularly if the Services PMI maintains its trajectory and the Manufacturing PMI remains above 50. This scenario might bolster the US Dollar (USD) against its competitors.
Conversely, should the Services PMI unexpectedly dip below 50, it could trigger a swift USD selloff. This potential volatility raises questions about future monetary policy directions.
"We do not need to be in a hurry to adjust policy" – Jerome Powell
Federal Reserve Chair Jerome Powell's statement underscores a cautious approach towards policy adjustments, which could influence market perceptions of interest rate trajectories. The possibility of rate cuts akin to those seen in the UK may weigh on the USD if economic indicators falter.
Pablo Piovano provides an analysis of currency movements in light of these developments:
"If bulls manage to regain the initiative, EUR/USD could challenge the February peak of 1.0513 recorded on February 14, which is closely followed by the 2025 high of 1.0532 reached on January 27. Should spot break through this barrier, traders might see a spirited climb toward the December 2024 top of 1.0629 (set on December 6) once the Fibonacci retracement of the September-January decline at 1.0572 is cleared."
"The resurgence of a sustained downward trend, instead, should put the pair en route to revisit the February low of 1.0209 hit on February 3, prior to its 2025 bottom of 1.0176 established on January 13. The breakdown of this level could signal a bearish turn back to the crucial parity zone."
These insights suggest that market participants will closely monitor PMI data for cues on currency trends and potential shifts in economic policy.
"A renewed increase in manufacturing production coincided with a slower rise in services activity. The rate of expansion in new business also eased in January, but the pace of job creation quickened and was the strongest since June 2022. Meanwhile, both input costs and output prices rose at faster rates" – S&P Global
This observation from S&P Global highlights key dynamics within the US economy that could shape future growth trajectories. As job creation accelerates and inflationary pressures mount, businesses may face challenges balancing costs with competitive pricing strategies.
Pablo Piovano further comments on technical indicators influencing market sentiment:
"The ongoing negative outlook is expected to persist as long as spot trades below its critical 200-day SMA at 1.0743. Further indicators note that the Relative Strength Index (RSI) remains around the 55 zone, indicating some constructive momentum, although the Average Directional Index (ADX) below 15 denotes a weakening trend."
These technical insights offer a comprehensive view of market conditions as stakeholders navigate evolving economic landscapes.