On Thursday, S&P Global released preliminary Purchasing Managers' Index (PMI) data for May across major economies, highlighting divergent trends in business activity and market sentiment. In the United States, market participants anticipate the Services PMI to print at 51, matching April's reading, while Manufacturing output is expected at 54, slightly below the previous month's 54.5. The Composite PMI stood at 51.7 in April, signaling continued moderate expansion. The USD has held substantial weekly gains, supported by expectations of upcoming interest rate hikes due to persistent inflation, largely attributed to the ongoing conflict in the Middle East. Investors are closely watching employment and inflation sub-readings for clues on the Federal Reserve's June policy decision, with higher rates expected to increase borrowing costs and potentially slow growth. A miss in PMI figures, especially below the 50 threshold, could pressure the USD, but demand for the safe-haven currency and rate hike bets are likely to persist regardless of the report's outcome [1][5].
In contrast, Eurozone business activity disappointed, with the Euro trading marginally lower against the USD at 1.1615. The Eurozone Services PMI fell to a 63-month low of 46.4 from 47.6 in April, missing expectations of 47.7. Manufacturing PMI slowed to 51.4 from 52.2, below the expected 51.9. France's Composite PMI dropped to a 66-month low at 43.5 from 47.6, with Manufacturing PMI at 48.9 and Services PMI at 42.9, both indicating steep contraction. German PMI figures also showed contraction in both sectors. These results confirm the negative impact of the energy shock, driven by elevated oil prices from the Iran war, and suggest sluggish GDP growth in Q2. The data poses a challenge for the European Central Bank (ECB) as it navigates high inflation and weakening activity [2][3].
French business activity was particularly hard hit, with the Composite PMI at 43.5, the lowest since November 2020, missing forecasts for stability. The oil shock has led to higher energy costs, reduced output, and plummeting new orders, materially increasing recession risks for France. Despite the dire data, the EUR/USD pair saw a recovery to near 1.1630, largely due to a correction in the USD amid optimism for a US-Iran peace deal. S&P Global's Joe Hayes warned that the broader uplift in prices could further destroy demand, deepening recession risks [3].
The United Kingdom also saw unexpected contraction, with the Composite PMI at 48.5, below the expected 51.7 and April's 52.6. The Services PMI declined sharply to 47.9, missing the forecast of 51.8, while Manufacturing PMI remained steady at 53.7. Chris Williamson of S&P Global cited rising political uncertainty, the impact of the Middle East conflict, surging inflation, supply shortages, and job cuts as key factors. The British Pound reacted negatively, but this was mainly due to a slight recovery in the USD rather than domestic data, with GBP/USD trading flat around 1.3435 [4].
On the market front, the US Dollar Index (DXY) reversed early gains, trading near 99.10 after failing to break above 99.35, as US Treasury yields corrected sharply amid optimism for a US-Iran peace deal. President Donald Trump stated that Washington is in the "final stages" of negotiations with Tehran, fueling hopes for a resolution. Technical analysis suggests the DXY remains constructive above the 20-day EMA at 98.75, with upside momentum positive but not overbought. A decisive break above 99.47 could see the index test 100.00, while a break below 98.75 would signal deeper correction. Despite recent volatility, the broader bias for the USD remains tilted to the upside [5].
CONCLUSION
The May flash PMI data underscores a widening divergence between the US and its European counterparts, with the US maintaining moderate growth while the UK and Eurozone face contraction amid energy shocks and geopolitical uncertainty. Market sentiment remains cautious, with the USD supported by rate hike expectations and safe-haven demand, while the Euro and Pound struggle against disappointing domestic data. Forward-looking statements suggest continued volatility, with central bank decisions and geopolitical developments likely to drive future market moves.