US ISM Services advances above estimates at 51.6 in April
- ISM Services PMI increased to 51.6 in April, surpassing consensus.
- The US Dollar started the week on a back foot around 99.50.
Economic activity in the United States (US) services sector gathered momentum in April, with the ISM Services PMI advancing to 51.6 from 50.8 in March, coming in above analysts’ estimates of 50.6.
Further details from the survey revealed that the Prices Paid Index—a key gauge of inflation—rose to 65.1 from 60.9, while the Employment Index climbed to 49.0 from 46.2, hinting at some improvement in labour market conditions within the service industry.
Market reaction
The US Dollar (USD) trades on a marked bearish bias on Monday, retesting the mid-99.00s in the wake of the release and amid a persistent optimism in the risk complex and easing US-China trade concerns.
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.
Author
Pablo Piovano
FXStreet
Born and bred in Argentina, Pablo has been carrying on with his passion for FX markets and trading since his first college years.
