ISM Manufacturing PMI set to signal steady expansion in US factory activity
- The US ISM Manufacturing PMI is expected to weaken slightly in August.
- Investors will also follow the ISM Prices and the Employment indices.
- EUR/USD has broken below its 200-day SMA, a herald for probable extra losses.
Attention shifts to Tuesday’s release of the August ISM Manufacturing Purchasing Managers Index (PMI), one of the most closely followed indicators of activity in the US manufacturing sector and an important barometer of the broader economy.
Markets expect the headline index to worsen a tad to 55.2 in August (from 55.6). That would be the eighth consecutive month with the index above the key 50 level that separates expansion from contraction, further suggesting that manufacturing activity continues to expand despite ongoing challenges.
But the story of the manufacturing sector is only part of the overall picture. The broader US economy has continued to prove impressively resilient thanks to solid growth results and healthy job creation despite the latest cooling in hiring. That resilience has kept the narrative of US “exceptionalism” alive, contrasting with many of its G10 peers.
But it will be more than just the headline figure that matters for investors. Signs of improving demand, new orders or employment could raise confidence that manufacturing remains solid and stable, while a disappointing report would add to concerns that the sector is struggling to gain meaningful traction despite the economy's broader upbeat tone.
What to expect from the ISM Manufacturing PMI report?
The manufacturing sector advanced to levels last seen more than four years ago in July, with business activity managing to stay in the expansion territory for the seventh consecutive month and extending the promising start to the year.
A glimpse at the July figures saw the New Orders component climbing to two-month highs at 56.7, suggesting demand remained solid. At the same time, price pressures eased for the third month in a row as the Prices Paid Index fell to 71.1 (from 73), showing that inflationary pressures in the manufacturing sector appear to be slowly cooling. The picture in the labour market has also improved, with the Employment Index rising to 52.8 (from 49.7) in the prior month, the highest reading since August 2022, signalling that hiring conditions are still improving.
A reading above 50 on the ISM Manufacturing PMI is generally considered a sign of expansion in factory activity, with a reading below that point indicating contraction. However, history suggests that sustained levels above 42.5 are still generally consistent with growth in the overall US economy.
A stronger-than-expected PMI would likely boost confidence in the resilience of the US economy for markets and underpin equities and broader risk sentiment.
But the implications for the US Dollar are less straightforward. A stronger report could also stoke expectations that the Federal Reserve (Fed) will hold interest rates at restrictive levels for longer, providing more support for the currency. A stronger report tends to favour the Greenback. On the flip side, a softer-than-expected reading could raise concerns about the manufacturing outlook and dampen sentiment.
When will the ISM Manufacturing PMI report be released, and how could it affect EUR/USD?
The ISM Manufacturing PMI report is scheduled for release at 14:00 GMT on Tuesday.
During the prior week, EUR/USD has weakened markedly, even breaching below its critical 200-day SMA, which has subsequently allowed for a deeper retracement.
Pablo Piovano, Senior Analyst at FXStreet, explains that further losses now appear more likely, with the immediate support at the provisional 100-day SMA near 1.1570. The loss of this short-term contention zone could lead to a test of the minor support at 1.1511 (August 13), ahead of the intermediate 55-day SMA around 1.1490.
On the other hand, “if the pair manages to reclaim the 200-day SMA, it could then embark on a potential revisit to the August ceiling at 1.1711 (August 21)", Piovano adds.
“Momentum indicators also suggest that extra declines should not be ruled out, as the Relative Strength Index (RSI) has retreated sharply and flirts with 51, while the Average Directional Index (ADX) above 40 suggests that the current trend is quite solid”, he concludes.
Economic Indicator
ISM Manufacturing Prices Paid
The Institute for Supply Management (ISM) Manufacturing Index shows business conditions in the US manufacturing sector, taking into account expectations for future production, new orders, inventories, employment and deliveries. It is a significant indicator of the overall economic condition in US. The ISM Prices Paid represents business sentiment regarding future inflation. A high reading is seen as positive for the USD, while a low reading is seen as negative.
Read more.Next release: Tue Sep 01, 2026 14:00
Frequency: Monthly
Consensus: 72
Previous: 71.1
Source: Institute for Supply Management
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
