The Institute for Supply Management (ISM) is scheduled to release its October Services Purchasing Managers' Index (PMI) on Wednesday. The report, a trusted measure of business performance and widely considered a leading indicator of economic activity, is expected to reflect moderate expansion in the services sector.

Due to delays and cancellations of key macroeconomic data releases due to the ongoing US government shutdown, the ISM Services PMI report could significantly impact the US Dollar (USD) valuation in the near term.

What to expect from the ISM Services PMI report?

Markets expect the release to show moderate expansion in services sector business activity, with the headline ISM Services PMI rising slightly to 50.7 in October from 50 in September.

Previewing the report, TD Securities analysts said, "We expect the ISM survey to edge higher in October, following largely disappointing results over the summer." "The ISM services index is expected to slightly mitigate the 2-point decline in September. Respondents' views and the ISM employment component will be of interest," they added.

In September, the Employment Index stood at 47.2 and remained below 50 for four consecutive months, reflecting a steady decline in payrolls in the service sector. After the October policy meeting, Federal Reserve (Fed) Chairman Jerome Powell acknowledged that job creation was low but added that they did not see the weakening in the labor market accelerating. Regarding the interest rate outlook, Powell said that another rate cut in December was "far from certain."

Meanwhile, the inflation component of the PMI survey, the Prices Paid Index, has remained above 69 for three consecutive months, reflecting strong input inflation for this sector.

According to the CME FedWatch Tool, the market is currently pricing in a roughly 67% probability of a 25 basis point (bps) Fed rate cut in December. (alg)

Source: FXstreet