Economic activity in the US service sector gathered momentum in February, with the ISM Services PMI advancing to 56.1 from 53.8 in the previous month, above analysts’ expectations of 53.5.
Further poll results found that the Prices Paid Index, a crucial barometer of inflation, ticked lower to 63 from 66.6, while the Employment Index rose to 51.8 from 50.3, indicating a humble improvement in labour market conditions in the service sector. Finally, the New Orders Index strengthened to 58.6 from 53.1.
Market reaction
The Greenback remains modestly offered following the release, as investors continue to closely follow developments on the broader geopolitical landscape. That said, the US Dollar Index (DXY) reverses part of its recent strong gains, breaking below the 99.00 support level.
GDP FAQs
A country’s Gross Domestic Product (GDP) measures the rate of growth of its economy over a given period of time, usually a quarter. The most reliable figures are those that compare GDP to the previous quarter e.g Q2 of 2023 vs Q1 of 2023, or to the same period in the previous year, e.g Q2 of 2023 vs Q2 of 2022.
Annualized quarterly GDP figures extrapolate the growth rate of the quarter as if it were constant for the rest of the year. These can be misleading, however, if temporary shocks impact growth in one quarter but are unlikely to last all year – such as happened in the first quarter of 2020 at the outbreak of the covid pandemic, when growth plummeted.
A higher GDP result is generally positive for a nation’s currency as it reflects a growing economy, which is more likely to produce goods and services that can be exported, as well as attracting higher foreign investment. By the same token, when GDP falls it is usually negative for the currency.
When an economy grows people tend to spend more, which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation with the side effect of attracting more capital inflows from global investors, thus helping the local currency appreciate.
When an economy grows and GDP is rising, people tend to spend more which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold versus placing the money in a cash deposit account. Therefore, a higher GDP growth rate is usually a bearish factor for Gold price.
Source: https://www.fxstreet.com/news/us-ism-services-pmi-climbs-to-561-in-february-202603041501
