Market sentiment regarding the next step of the Federal Reserve has been changing as statements by Federal Reserve officials and reports are released. The sentiment had been predominantly in favor of a pause in interest rate hikes.
However, today the Institute for Supply Management released the ISM report for May. The report revealed that the ISM services index came in lower than expected at 50.3 for the month. The report also revealed that the service sector in the United States hardly expanded last month resulting in a contraction of new orders falling from 51.9 in April. Expectations and forecasts predicted that today’s report would come in above April’s reading of 51.9 with a forecast of 52.2.
The lower reading made a strong case for the Federal Reserve to not raise rates at the FOMC meeting this month. It strengthened the probability that the Federal Reserve will not raise rates at the next FOMC meeting. This action was highly supportive of gold which traded under strong selling pressure on Friday and today as gold trading resumed in Australia, Hong Kong, and London. However, all of this changed when the report was released in the United States in the morning.