ISM Services PMI Preview: Dollar bounce to be short-lived

The ISM Services PMI and its employment component are projected to decline in August, yet other figures seem more optimistic. However, a potential rise in the dollar will probably be short-lived as the Fed's dovish shift continues weighing on the greenback, according to FXStreet’s analyst Yohay Elam.

Key quotes

“The ISM Services Purchasing Managers' Index, is projected to decline in August. The economic calendar is pointing to a drop from 58.1 points in July to 57 now. Moreover, economists expect the employment component to plunge from 42.1 to 31.9 points – deep in contraction territory and reflecting a drop in hiring. The figure is critical ahead of Friday's Non-Farm Payrolls data.”

“If the bar is indeed too low, the greenback has room to rise, similar to its response to the manufacturing measure. However, it is also essential to remember that the broader trend is for a weaker greenback.” 

“The Federal Reserve announced a dovish policy shift that continues reverberating through markets, supporting shares and weighing on the dollar. The Fed is prioritizing full employment and would allow inflation to overheat before raising rates.” 

“While the new thinking has no imminent implications, markets continue benefiting and the dollar remains pressured for the time being. Therefore, any jump in the world's reserve currency would potentially provide a selling opportunity.”