Data released by the Institute for Supply Management (ISM) at 3pm on Tuesday afternoon showed business conditions worsening in the US non-manufacturing sectors in August. The Dollar fell against the Pound in response to the news.
A cohort of recently published US economic data came in below expectations, begging the question: what the Fed will decide to do this month?
ISM Non-Manufacturing PMI falls in August
The US ISM Non-Manufacturing PMI for August came in at 51.4. The figure dropped 4.1 points from July, the biggest drop since September 2013 and missing estimates by 4.3 points.
Further, an index for the Labour market conditions in August, published by the Fed this afternoon, also fell. The figure stood at -0.7, down 1.3 points from July.
On Thursday last week, the ISM Manufacturing PMI came in well below expectations.
The Dollar weakened against the Pound on the new data release.
Between 2.40 and 3.48pm the USD/GBP lost 0.69% to a new value of 0.74501.
The dollar also recorded major losses on Thursday and Friday last week, after the ISM Manufacturing PMI and labour market data for August came in well below expectations.
May the Fed still hike rates?
Data releases on the performance of different economic sectors and the labour market will be watched closely by the Federal Reserve, which will make its next decision on monetary policy measures in a meeting on the 20. and 21. of this month.
In a speech on Friday the 26th Fed chair Janet Yellen said “the case for raising interest rate had strengthened” on the back of July’s encouraging figures on economic activity and improvements in labour market condition. She did however refrain from giving any clear indication when a rate hike should be expected.
Since Yellen’s speech data on US labour market growth in August disappointed with 104,000 less jobs being created than in the previous month.
The latest figures on developments in the indices for business conditions in the manufacturing and non-manufacturing sectors adds to the discouraging data.
The CME Group’s FedWatch Tool has decreased its probability rating for a Fed rate hike in September. The probability of an increase to 50-75 stands at 18%, down 3% from Monday.
However, a rate hike is still expected this year. The FedWatch Tool currently indicates a 42.9% probability for an increase in December, up 1.8% from the previous day.
Katharina Fleiner 06/09/2016