Attention shifts to Wednesday’s release of the June 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 remain unchanged at 54, matching May’s print. That would be the sixth consecutive month with the index above the key 50.0 level that separates expansion from contraction, suggesting manufacturing activity continues to expand despite ongoing challenges.
But the story of the manufacturing sector is only part of the story. The broader US economy has continued to prove impressively resilient thanks to better-than-expected growth and a labour market that has largely held firm despite high interest rates. That resilience has kept the narrative of US exceptionalism alive, even as factory activity remains muted.
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 is slowly stabilising, while another disappointing report would add to concerns that the sector is struggling to gain meaningful traction despite the economy’s broader strength.
What to expect from the ISM Manufacturing PMI report?
The manufacturing sector advanced to levels last seen nearly two years ago in May, with the business activity managing to stay in the expansion territory for the fifth consecutive month, extending the auspicious start to the year.
The biggest jump was in new orders, with the related index climbing to 56.8, its highest in the past four months, suggesting demand remained solid. At the same time, price pressures eased as the Prices Paid Index fell to 82.1 from 84.5, showing that inflationary pressures in the manufacturing sector appear to be slowly cooling. The picture in the labour market has also improved after the Employment Index rose to 48.6 from 46.4 in the prior month, but it still remained well short of the 50.0 mark, signalling that hiring conditions are still tough.
A reading above 50.0 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 Wednesday.
Prior to the data release, EUR/USD has managed to extend its rebound from last week’s multi-month troughs, although extra gains seem to have met a tough barrier ahead of the 1.1450 level.
Pablo Piovano, Senior Analyst at FXStreet, explains that further advances need to initially clear 1.1450 to attempt a move toward the weekly peak at 1.1622 (June 15). Immediately to the upside comes the critical 200-day SMA at 1.1657, preceding the weekly high at 1.1685 (May 29).
Piovano also noted that on the downside, the pair faces initial contention at the 2026 bottom of 1.1324 (June 24). A breach below this level could spark a likely challenge to the 1.1300 round level, ahead of the weekly floor at 1.1210 (May 29, 2025).
Piovano added that the outlook remains tilted to further weakness as long as spot trades below its 200-day SMA.
He also pointed out that the Relative Strength Index (RSI) hovers around 37, indicating a pick-up in the bearish stance, while the Average Directional Index (ADX) around 36 suggests that the current trend is quite firm.
Economic Indicator
ISM Manufacturing Employment Index
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 Manufacturing Employment Index represents business sentiment regarding labor market conditions and is considered a strong Non-Farm Payrolls leading indicator. A high reading is seen as positive for the USD, while a low reading is seen as negative.
Employment FAQs
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.
