The U.S. Non-Manufacturing Index printed worse than expected, dropping 0.6 percentage points to 52.7 in July. This was the lowest reading since January 2010. The service PMI fell short of the forecasted 53.5, serving another blow to the already stricken economic recovery. While the index came in above 50, the boom/bust line, the rate of expansion has slowed. As the service sector accounts for more than 80% of US economy, this decline presented more potential risks to the vitality of the dollar.
The ISM report released this morning provided more alarming signs of a sputtering recovery. The employment sub-index printed at 52.5 in July versus 54.1 in June. After two months of faster job growth, the service sector has held back in hiring. Some respondents commented that they are filling some vacancies on a case-by-case basis. Cutbacks in head counts on both manufacturing and service fronts pointed to another lackluster job report on Friday. On the flip side, the sub-index for prices paid registered 56.6, 4.3 points lower than the 60.9 reported in June. As the price paid moderated to below 60 in July, inflationary pressures eased temporarily for business. Nonetheless, as consumer demand remains low, businesses are still having concerns about the second half of 2011.
Traders flocked into the safety of the Japanese yen driving USD/JPY lower in early European session. As the ISM service index surprised to the downside, market participants dumped the dollar pushing USD/JPY to a low of 76.81. While the pair saw support at 76.80, a Bank of Japan intervention remains an upside risk for USD/JPY.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
