Source: Golden Ten Data

The US dollar is moving forward with an upward trend for the eighth week in a row, which is the longest continuous increase since 2005. Traders expect continued growth in services data, as the dollar tends to rise when reports show expansion and outperforming the slowing commodity sector.

At 21:45 Beijing time on Wednesday, the US will announce the final value of Markit's service sector PMI for August. At 22:00, the US will announce the August ISM non-manufacturing PMI.

In the past 10 years, the US service industry has surpassed the commodity sector by 2.5 percentage points over at least six months on four occasions, and during these periods,The dollar has risen by an average of 4%.

As the service sector began to dominate after the COVID-related downturn, and commodity activity and prices were pressured by a slowdown in trade and monetary tightening by the Federal Reserve, the differentiation between the two became more obvious.

“This resilience of the US economy, whether it's employment growth, continued inflation, or consumer spending, is mainly driven by the service sector,” Adarsh Sinha (Adarsh Sinha), Co-Head of Foreign Exchange and Interest Rate Strategy for Asia at Bank of America, said in a weekly outlook report. The bank is optimistic about the ISM Services Index report to be released on Wednesday, “In our opinion,A significant slowdown in the services sector is necessary for the continued depreciation of the dollar, even if not sufficient conditions”.

The US non-farm payrolls report for August last Friday showed that the labor market is experiencing an orderly cooling, and the data is undermining the US dollar. However,Currency traders are closely watching ISM non-manufacturing PMIfor more information on the health of the job market. A data record of 50 or higher indicates that the economy is expanding, but the forecast indicates that the index will fall from 52.7 to 52.5 in August.

Bank of America strategists said that since the beginning of 2022, 80% increase in the US dollar can be attributed to the Fed's monetary policy in relation to other countries.

The performance of the service sector will also have an impact outside of the US. Europe, Australia, and the UK have all experienced a rift in the service sector, a trend that is altering policy prospects and putting pressure on their respective currencies. One exception is Japan, where PMI data shows the country's services sector has been expanding for the 11th month in a row, and about 70% of the economy's GDP comes from this sector.

According to the OECD, the service sector accounts for more than two-thirds of global GDP, attracts more than three-quarters of foreign direct investment from advanced economies, and provides the most employment opportunities.

In Europe, weak services prompted Morgan Stanley to change its policy outlook for the European Central Bank last week, indicating that the ECB's benchmark interest rate may have reached a peak of 3.75%, while the previous view was that there would be further interest rate increases.

“The downside of service inflation, combined with the upcoming September base effect and weak service purchasing managers' index, provides good reason to believe that service sector inflation will continue to decline in the coming months,” Morgan Stanley economists, including Jens Eisenschmidt, wrote in a memo.Many bullish bulls have changed their positions due to concerns about the Eurozone's stagnation.

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