PMI ISM USA "Catch Fire" and Activity Overtake Expectations – The Fed Is Trapped

Igor Pereira · February 4

Traders, service sector activity data (ISM and S&P Global) just left and the message is clear: The economy is not getting cold and inflation is accelerating again.

By Igor Pereira Financial Market Analyst

The scenario of "Iminent Interest Courts" has been hit hard now. The component of Prices it is the negative highlight (or positive for the Dollar), showing that inflationary pressure in the service sector remains "sticky" and high.

Below is the detailed analysis of the numbers and the immediate impact.

This is the number the Fed will look at with concern.

The Result: 66.6 (As expected).
The Comparison: It rose significantly from the previous 64.3.
ExpertFX Reading: A price index of 66.6 indicates robust and inflationary expansion in service sector costs. This confirms Powell's narrative that the "fight against inflation is not over." High prices = Higher interest for longer.

Unlike the forecast of impending recession, the service sector continues to grow.

ISM Non-Manufacturing PMI: It came out in 53.8 , overcoming the forecast of 53.5 (although below the previous 54.4).
S&P Global Services PMI: It came out in 52.7, marginally above the previous and the forecast of 52.5.
Reading: Any number above 50 indicates expansion. The US economy continues to show stubborn resilience, which gives the Fed "space" for no cut interest if inflation persists.

The market received a "cold water bath" in the aggressive money loosening bets.

My Vision: Strong data with high inflation creates an environment of Stagflation in the long term, but strengthen the Dollar in the short term.

Dollar (DXY): It must gain immediate strength (Bullish) with confirmation that the economy bears high interest and prices continue to rise.
Gold (XAU/USD): It may suffer an algorithmic selling pressure (Knee-jerk reaction) in the short term due to the strengthening of the Dollar and higher Yields. However, remember: Persistent inflation (66.6) is ultimately the biggest argument to have physical gold. Use any fall caused by this news as an opportunity to purchase, as the currency devaluation continues.

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