FXStreet (Łódź) - James Knightley from ING believes that the July Non-Manufacturing PMI, due out later today, is set to rise to 56.5, reassuring that growth momentum is broadening in the US.

Key quotes

"This survey covers several different sectors including farming, construction, real estate, retail and a wide range of service firms, but it is the retail sector that tends to drive direction."

"In this regard, we can see in the left hand chart that there is a high correlation with the ISM report and the 'control' retail sales series, which strips out the four most volatile components."

"It suggests that the odds favour a rise in the ISM – we forecast a reading of 56.5 versus 56.0 in June."

"We also expect to see a rise in the employment component, which would mirror developments in Friday’s ISM manufacturing survey and help to ease worries that the labour market may be losing momentum."

"With the ISM indices pointing to US GDP growth accelerating towards 4%YoY from the current 2.4%, we believe that inflation pressures will build in the economy."

"Wages already appear to be responding given the pick-up seen in the employment cost index, even if they are yet to show through in the average earnings numbers."

"Housing rents are also rising in a lagged response to house price gains and given shelter accounts for just under a third of the total weight of the inflation basket, this could have wide-scale implications."

"As such, we are happy to be in the camp continuing to predict Fed tightening coming sooner rather than later and remain bullish on the dollar. However, we may have to wait until after the summer lull has passed for markets to really get behind this view. "

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