Insights 
VT 
The US S&P Global Composite PMI rose to 52.1 in May from 50.6 in April, showing an increase in business activity within the US private sector. The Manufacturing PMI also increased to 52.3 from 50.2, while the Services PMI went up to 52.3 from 50.8.
This expansion in the private sector has impacted the US Dollar, with the US Dollar Index rising by 0.15% and reaching 99.85. The US Dollar showed the strongest performance against the New Zealand Dollar.
PMI Predictions
Market analysts predict slight changes in PMI readings for May, forecasting the Services PMI to remain at 50.8, while the Manufacturing PMI may drop to 50.1. Any PMI reading above 52 could strengthen the US Dollar, whereas readings below 50 could apply selling pressure on it.
The US Dollar is the most traded currency worldwide, involved in over 88% of global foreign exchange transactions. The Federal Reserve’s monetary policy significantly impacts the US Dollar’s value, with interest rate adjustments being its primary tool for controlling inflation and fostering full employment.
With the composite Purchasing Managers’ Index (PMI) having moved above the neutral 50 mark to reach 52.1 in May, from the prior 50.6 in April, it’s clear that economic momentum in the US private sector is picking up. That’s shown in both manufacturing and services, which each posted a rise to 52.3. These figures point to a broad-based improvement, suggesting increased orders, stronger confidence among firms, or a return of previously delayed investments.
We can see this reflected in how the dollar has responded — a gain of 0.15% in the Dollar Index isn’t dramatic, but context matters. The appreciation, especially against the New Zealand currency, indicates a renewed appetite for the greenback, possibly as an early signal of diverging monetary paths between economic regions. When business activity rises beyond prior expectations, that’s often met with increased speculation around central bank tightening or, in a more complex scenario, delayed cuts.
Market Expectations
Some analysts expect a mild decline in the upcoming Manufacturing PMI down to 50.1, which technically still shows expansion, though only marginal. The Services figure is eyed to hold steady at 50.8. Neither of these speak to contraction, but they do imply a plateau. If those numbers instead print meaningfully higher — a leap even half a point stronger in either — that may trigger fresh moves in interest rate expectations, particularly if employment and inflation data follow suit.
We’re watching with particular care how these monthly PMI swings get priced into rate futures and how differentials widen or narrow across developed currencies. Rate traders will, if they haven’t already, start to factor in whether this early summer strength is an anomaly or a sustained rebound. There’s also the matter of sentiment, which can shift quickly if key levels in yields are approached or breached.
In cases where PMIs drop sharply below the 50 mark, interest-sensitive sectors may react immediately, as that typically coincides with lower expected demand and changes the inflation narrative. Historically, the dollar does not fare well in environments where US economic momentum stumbles, particularly when other economies are expanding or holding firm.
With the Federal Reserve relying mostly on adjustments to the interest rate corridor to meet its dual mandate, every tick in forward economic signals becomes more valuable. It’s not just a matter of current strength — but how sustainable that strength really is. We’re finding that reading second-tier data has become equally important as following headline official statistics, especially when major central banks are operating with caution.
So while headline PMIs are often considered early indicators of growth, it’s their alignment with other numbers — hiring, industrial orders, even regional surveys — that offers real confirmation. Any clustering of data suggesting broader acceleration will support the case for a prolonged pause or even a further hike, thereby reinforcing support under the dollar.
At this stage, it’s not only about whether the economy is expanding, but whether that expansion is strong enough to change rates expectations versus what’s currently priced in. That’s the hinge point traders might want to lean into.
