FX round-up: Sterling jumps after UK services PMI then drifts back

Sterling and the yen were the focus of trading at the start of the week, with both currencies witnessing big gains, although by the end of trading those in the former had been largely erased.

Cable edged just 0.08% higher to trade at 1.3303 as of 2014 BST, albeit after spiking to 1.3376 after the release of another surprisingly strong read on the state of the economy - on the critical services sector no less.

IHS Markit´s service sector purchasing managers´ index for the month of August bounded back by a record-breaking 5.5 points to hit 52.9 (consensus: 50.0), following an equally memorable drop in the month following Brexit.

Fabrice Montagne and Andrzej Szczepaniak at Barclays Research put that resilience down to three factors: 1. the speed with which a new Cabinet was formed, 2. the BoE´s "muscular" policy response and 3. growing expectations that Westminster´s plans for fiscal austerity will be binned in the upcoming Autumn statement.

Nonetheless, the two economists reminded clients of the official warnings coming out of the G-20 that Brexit uncertainty still lay ahead.

Furthermore, real economic data referencing the month of July over the next two weeks might "challenge" the rosy picture depicted by the PMI´s.

Certainly, Governor Mark Carney´s upcoming appearance before the Treasury Select Committee would now be even more keenly awaited for clues as to the MPC´s assessment of the true underlying state of things in the economy, some traders said.

Dollar/yen finished the session 0.6% lower to 103.38, just a tad off its intraday lows of 103.14.

Speaking on 4 December, Bank of Japan Governor Haruhiko Kuroda said rate-setters in Japan should not hesitate to take further actions if they were warranted.

"Even with the current framework there is ample room for further monetary easing in either of three dimensions, quantity, quality and the interest rate [...] and other new ideas should not be taken off the table,” Kuroda said.

His remarks appeared to trigger further moderate selling in Japanese 30-year debt ahead of the BoJ´s next policy meeting on 21 September.

The US dollar index drifted marginally lower, trading down by just 0.11% to 95.78 albeit after having plumbed an intraday low of 95.55.

To take note of, the absence traders on the other side of the Pong due to the US Labour Day holiday may have acted to restrain big prices moves in FX markets.