ISM Services PMI Preview: US services sector expected to expand in July

• The US ISM Services PMI is seen improving a tad in July.
• The US services sector is expected to remain within expansionary territory.
• Investors continue to favour approximately two rate cuts from the Fed this year.

On Tuesday, the Institute for Supply Management (ISM) will unveil its July Services PMI, and analysts expect it to edge up to 51.5 from June's 50.8. That would mark a second straight month of growth in the services sector -- a sign of its resilience and a boost to confidence in the wider US economy.

That said, not all readings were uniformly strong in the previous month. The ISM Employment Index slipped back into contraction territory at 47.2, while the New Orders Index rebounded to 51.3, signalling firmer demand for services. On the cost front, the Prices Paid Index inched down to 67.5 from 68.7, a reminder that price pressure remains persistent.

What to expect from the ISM Services PMI report?

Inflation in the US is still running hotter than the Fed's 2.0% goal, keeping policymakers on edge--especially as the full impact of recent tariffs on the broader economy is yet to play out.

Last week's PCE report underlined the point: headline inflation climbed to 2.6% from a year earlier in June (up from May's 2.4% and above most forecasts), while core PCE--stripping out food and energy--remained stubbornly steady at 2.8%.

In that light, an ISM Services PMI reading that simply meets expectations is unlikely to budge the US Dollar: it would reinforce the sense of a still-resilient economy despite persistent price pressure. But if the services sector were to soften more sharply than anticipated, it could unsettle markets and prompt investors to lighten up on the Greenback amid worries about a loss of economic momentum.

When will the ISM Services Purchasing Managers Index report be released, and how could it affect EUR/USD?

The Institute for Supply Management (ISM) will publish the Services Purchasing Managers Index (PMI) on Thursday at 14:00 GMT.

According to Pablo Piovano, Senior Analyst at FXStreet, "The resurgence of the selling process could initially drag EUR/USD to its monthly floor at 1.1391 (August 1), which comes just ahead of the provisional 100-day SMA at 1.1369. The loss of the latter could put a potential move to the weekly trough at 1.1210 (May 29) back on the radar."

On the other hand, periods of strength could spur the market to challenge the weekly high at 1.1788 (July 24) before reaching the 2025 ceiling of 1.1830 (July 1). Once this region is cleared, the pair could embark on a probable move to the 1.2000 milestone," Piovano adds.

Finally, Piovano suggests that, "while above the 200-day SMA of 1.0944, the pair's constructive outlook should remain unchanged."